gains from others’ losses: technology trajectories and the ......economic viability of, and thus...
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Gains from Others’ Losses: Technology Trajectories and the Global Division of Firms
Chia-Hsuan Yang, Rebecca Nugent, Erica R.H. Fuchs
Carnegie Mellon University
This Draft: April 2, 2012
Abstract
After the burst of the telecommunications bubble in March 2000, the majority of U.S.
optoelectronic component firms moved manufacturing offshore. This research explores (1)
whether due to different offshore production economics, firms who move manufacturing
offshore stop or slow U.S.-based R&D activities in the emerging technology necessary to access
larger markets and (2) whether the inventors originally within these offshoring firms, leave, and
continue to innovate in the emerging technology at different institutions. We focus on the 28
leading small- or medium-sized U.S. firms that manufacture optoelectronic components for
telecommunications (18 offshore, 10 not) and the inventors who patent at these firms. We
triangulate hand-classified USPTO patents, firm SEC filings, inventor CVs, and structured
interview data we collect from the firms. Our results show that there is a relationship between
firms’ type and extent of offshoring facilities (fabrication, assembly) and their innovation
directions. In particular, we find that while offshoring is associated with a statistically significant
decrease in innovation in the emerging technology, it can be associated with an increase in all
other types of patenting. While an important minority of inventors of the emerging technology
who worked at offshoring firms depart to a single onshore firm in the same industry (which
subsequently dominates this space), the majority of inventors depart to firms outside our study
scope and stop work in the emerging technology.
****Draft! Please do not cite or circulate without permission of the authors****
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1. Research Background
1.1. Offshoring and Innovation
Offshoring1, the relocation of firms’ business processes to other countries, has become
mainstream in many industries (Bardhan and Kroll 2003; Lewin and Couto 2007). When
offshoring, firms often are pursuing advantages, such as low labor costs (Bardhan and Jaffee
2005), skilled talent access (Baily and Farrell 2004) , unique resources availability (Oviatt and
McDougall 2004), and quick speed to market (Brown and Hagel 2005). Beyond firm advantages
or disadvantages, a growing public debate exists today on the economic impact of offshoring on
the firms’ home nation, especially on innovation and technology change (Pisano and Shih 2009;
Tassey 2010; PCAST 2011; WhiteHouse 2011; Rotman 2012). The renewed focus on the
relationships between offshoring and technology change in the home nation has relevance:
indeed, while the estimate of technology’s contribution has evolved over time, in his nobel-prize
winning article Solow argued that technology change can contribute to over 87% of increases in
productivity and thus economic growth (Solow 1957).
Mainstream economic theory suggests that offshoring, by leveraging the well-known benefits
of comparative advantage and gains from trade, can benefit both firms and their home country.
Related arguments have been made for firms: cost reductions associated with offshoring can
enable firms to earn more and thereby invest more in new technology development within the
domestic economy (Agrawal and Farrell 2003; Baily and Farrell 2004). On the other hand, others
have shown that the separation of processes can be harmful to innovation development and the
national economy. Geographic distance can impede knowledge flows in R&D (Allen 1984) and
reduce opportunities for employees to be physically present, which can in certain contexts be 1 Generally, offshoring is used to refer to the relocation of any productive activities – e.g. services, technological development or production – from a firm’s home country to one or more other nations. For the specific case studied in this paper, we subsequently define offshoring as moving manufacturing processes from the U.S. to low labor cost areas, and in particular developing countries, by firms.
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critical for problem-solving (Tyre and Von Hippel 1997). Other dimensions of distance,
including cultural and administrative distance, can also affect knowledge flows (Ghemawat
2001). Recent studies have also demonstrated that in certain cases when manufacturing goes
offshore, R&D and engineering may also go offshore, following manufacturing, and thus
threaten technological leadership and economic growth in the home country (Fifarek et al. 2008;
Dewey and LeBoeuf 2009). In contrast to these past studies, which have focused on the
challenges of geographic separation and the potential for R&D work to follow, recent work by
Fuchs and others has suggested a direct and very different link between the offshoring of
manufacturing and technology development. In particular, they demonstrate in two industries
that the economic differences between developed and developing locations can reduce the
economic viability of, and thus firms’ incentives to develop, emerging technologies (Fuchs and
Kirchain 2010; Fuchs et al. 2011).
Despite this wealth of past research, few papers to-date have focused on the effect of
offshoring on technology directions – and in particular how that effect may differ at the firm
level versus the industry or national one. Previous research shows that innovation direction can
be influenced by technologists themselves (Dosi, 1982), market demand (Dosi 1982), or process
management, like ISO 9001 (Benner and Tushman 2002). Building on Fuchs and Kirchain
(2010), this paper leverages a case study of the optoelectronics industry to explore the
relationship between offshoring and innovation directions, and in particular the directions of the
offshoring firms versus the directions of individuals that may take that technology into other
non-offshoring firms within or outside the industry.
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1.2. Industry Environment
1.2.1. The U.S., Optoelectronics, and Monolithic Integration
Optoelectronics, a technology combining optical with electronic technologies, is expected
to gradually replace pure electronic technologies in information technology (OIDA 2005;
Schabel 2005). Compared to electronics, optoelectronics enables components to have lower
power consumption, have higher data carrying capacity and have no cross-talk problems by
using photons instead of electronics to transmit information (Holden 2003; OIDA 2005; Shah
2007). As such, optoelectronics technology is become increasingly crucial to meeting market
requirements for higher bandwidth and reliable transmission in a wide range of applications.
In addition to its technical significance, optoelectronics also has the potential to have
significant economic impact. Optoelectronics, as a general purpose technology, has the potential
to be used not only in telecommunications but also widely in biomedical, military, computing
and energy applications (OIDA 2006; Shah 2007). Past research has suggested that this kind of
general purpose technology can drive technical progress and boost economic growth (Bresnahan
and Trajtenberg 1995). Finally, high tech manufacturing industries such as optoelectronics, also
support a disproportionate number of jobs and R&D in the U.S (compared to non-manufacturing
and lower tech industries) (PCAST 2011).
The optoelectronics component manufacturing industry has over the last three decades
faced many challenges. In the 1980s and 1990s, as optoelectronics was revolutionalizing
telecommunications, a firm’s competitiveness was a function of bringing the latest innovation to
market. With the burst of the telecommunications bubble in March 2000, however, firm survival
became a function of costs. With this shift in focus, many optoelectronic component
manufacturers were faced with a dilemma: move manufacturing overseas to developing countries
to reduce costs, or pursue an emerging technology, called monolithic integration, back in the U.S.
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that may enable them to have greater comparative advantage in the longer term in
telecommunications and to move into larger markets beyond telecommunications such as
computing, mobile, and sensing applications. (Fuchs and Kirchain 2010)
Our study focuses on U.S. optoelectronic component manufacturers’ offshoring and
associated innovation in this emerging technology called monolithic integration (discussed in
detail below in section 1.2.2). Monolithic integration is the fabrication of multiple functions on a
single chip using semiconductor processing techniques. While this fabrication of multiple
devices on a single chip was mastered several decades ago in electronic semiconductors for the
case of transistors, it is in its infancy in the photonic semiconducting materials required for
optoelectronic devices. Unlike electronics – where monolithic integration is of devices with
similar material compositions, in optoelectronics, monolithic integration requires the fabrication
of devices with often vastly different material compositions on a single chip. This type of
fabrication poses significant scientific challenges. The potential benefits of monolithic
integration, however, are equally significant. Monolithic integration reduces the size of the
device – thus enabling the many advantages of optoelectroincs to be applicable in new, and much
larger markets beyond telecommunications – including computing, sensing, and mobile
technologies – where device size can be central. In many ways, monolithic integration might be
thought of as a general purpose technology enabler – providing optoelectronics the potential to
expand into this broad array of new markets. These size advantages can also be relevant in
telecommunications, however, do not take precedent when the primary focus is on costs. Finally,
monolithic integration may also have advantages beyond size for reliability, light-weighting, and
in some cases cost (Mickelson et al. 1997; Fuchs and Kirchain 2010).
To help provide broader context for our study, we plotted firm innovation activities in
optoelectronics integration in different nations based on USPTO patents to understand the role of
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U.S. firms in integration internationally. U.S. firms, followed by Japanese firms2, produced
almost half of the patents in integration. (This integration patent count includes both monolithic
and hybrid integration patents – see section 1.2.2 for discussion.) In addition to the U.S. as a
nation being the top annual and cumulative patentor of integrated (monolithic and hybrid)
technologies, U.S. firms are also the vanguards in integrated technology (monolithic and hybrid)
innovation – having started patenting in optoelectroincs integration in 1973, five years prior to
any other nation3. Thus understanding the technology directon of the U.S. firms is also an
important part of understanding trends in optoelectronic innovation internationally.
1.2.2. Integrated vs. Discrete (Non-integrated) Designs
There are three competing designs today in optoelectronic device technology: integrated
designs, which are split into monolithically integrated and hybrid integrated designs, and discrete
designs. Integrated designs combine different components onto one chip; discrete technology
keeps components on separate chips and connects the chips using assembly techniques such as
wirebonding instead of fabricating them on a single integrated circuit. Integrated designs
(monolithic and hybrid) are generally more compact than discrete designs (Mickelson et al.
1997).
To achieve integration, there are two techniques: monolithic and hybrid. Monolithic
techniques fabricate all devices on a single substrate via fabrication processes including
deposition, growth, and etching. In contrast, hybrid techniques, intead of using fabrication, bond
different devices together using techniques such as flip-chip or bump bonding. Of the two, the
monolithic design both requires the most cutting-edge processing and materials technology and
holds the most promise for significant long-term benefit as it significantly reduces component
2 Japanese firms hold just over 30% of the cumulative patents in integrated designs (monolithic and hybrid) for the period of our study. 3 U.S. firms started patenting in integration in 1973, followed by Germany (1978), Italy (1978) and Canada (1979).
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size, thus enabling optoelectronics components be implemented in more market appliations. In
Fuchs 2010, the emerging “integrated” design refers to monolithic integration technology. Fuchs
2010 does not address hybrid technologies. Monolithic technology, which uses fabrication to
integrate devices, is related to frontend (fabrication) manufacturing; hybrid and discrete (non-
integrated) technologies, which use assembly techniques to combine devices, are related to
backend (assembly) manufacturing.
The USPTO patent class for integration (385/14) includes both hybrid and monolithically
integrated patents. In this paper, we hand-classify all integrated patents into monolithic or hybrid
so we can treat them as separate response variables in our regression models and case studies.
2. Research Hypotheses
This research explores how the movement of U.S.-headquartered optoelectronic component
firms’ manufacturing offshore to developing countries is associated with the quantity4, locus5,
and direction6 of innovation within the population of U.S. optoelectronic component
manufacturers. In addition, to unpack the potential relationship between offshoring and activities
beyond the immediate offshoring firms, we also explore the quantity, locus, and direction of
innovation among inventors within the optoelectronic component manufacturers during the same
time period, many of whom were pursuing integrated (monolithic or hybrid) activities.
2.1. Hypotheses – Offshoring and Firms’ Innovation
As discussed earlier, the movement of manufacturing offshore can provide firms with
location-based advantages, such as tax reductions, increased access to and understanding of
4 Here, quantity refers to the total number of patents as well as the rate of patenting. 5 Here, locus refers to an inventors’ location: at an onshore firm in the industry, at an offshore firm in the industry, at a new firm outside the industry, or at an institution other than a firm, such as a university or government lab. 6 Here, direction refers to optoelectronic component innovation in monolithic, hybrid or non‐integrated technologies.
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market preferences (Brown and Hagel 2005), and cheaper access to natural or human resources
(Oviatt and McDougall 2004). These advantages can help firms reduce their manufacturing
costs and free up resources to put into higher value-added activities back in the home nation, like
innovation (Farrell 2003, 2005).
In the case of the optoelectronic industry, manufacturing overseas in developing countries
reduces firms’ overall production costs (see Figure 1). As can also be seen in Figure 1, while the
emerging, monolithically integrated optoelectronic component technology is cheaper to produce
if manufacturing occurs in the U.S.; in contrast, the prevailing, discrete technology is cheaper to
produce if manufacturing is in developing East Asia, due to production differences including
lower labor wage, material and assembly costs overseas. Most importantly, the cost of
producing the discrete optoelectronic technology in Developing East Asia is lower than the cost
of producing the monolithic optoelectronic technology onshore back in the U.S. Thus,
production of the discrete device in developing East Asia is the global optimum from the
perspective of minimizing production costs. These economics alone, however, may not be
enough to change the trajectory of firms. A number of additional factors reduce optoelectronic
firms’ incentives and capability to develop the emerging, monolithically integrated, technology
(Fuchs and Kirchain 2010): First, production of the discrete device in developing East Asia is the
cheapest alternative globally, and firms are likely to focus first on cost-competing in the
telecommunications market with their existing customers rather than pursuing uncertain
opportunities in new markets that may require the size advantages of monolithic integration.
Second, fabrication engineers need to be regularly on the production line during the production
of high-end monolithically integrated optoelectronic devices, and there is currently a lack of
R&D engineers with monolithic integration capabilities in developing East Asia. Third, the
optoelectronic component market is currently too small to support individual firms having
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multiple manufacturing facilities. Given the above context, we hypothesize that after firms go
offshore, they will shift away from the emerging monolithically integrated design but have more
financial and human resources to put towards developing prevailing, assembly based
technologies (hybrid and non-integrated).
Hypothesis 1: Offshoring is associated with a decline in firms’ development of
monolithically integrated designs, but an increase in firms’ development of hybrid integrated
and non-integrated designs.
Figure 1 Offshoring can reduce or remove firms’ economic incentives for developing emerging technology (monolithic integration). (Fuchs and Kirchain 2010)
2.2. Hypotheses – Offshoring and Inventors’ Innovation
Although our patenting data shows firms (compared to, for example, universities or
government laboratories) to be the institutions making the primary contribution to U.S. patenting
activities in optoelectronics, firm incentives alone are not sufficient to explain the quantity and
direction of technology innovation. Mobility of inventors has been shown to be a driver of
regional innovation (Miguélez and Moreno Serrano 2010), and this inter-firm mobility can affect
Prevailing Discrete
Technology U.S.
Emerging Monolithic
Technology U.S.
Prevailing Discrete
Technology D.E.A.
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both the locus and transfer of knowledge (Almeida and Kogut 1999). Therefore, in addition to a
firm-level analysis, we also conduct an analysis of innovation activities at an individual level to
understand whether offshoring by individual firms may be associated with changes in the locus
and direction of technology development in the U.S. more broadly. In particular, individuals may
select different innovation directions than firms by leaving the offshoring firms and working on
the emerging monolithic technologies by themselves or at other firms or institutions. Indeed,
past research has suggested that once an inventor has been in a particular technical area for more
than three years, he or she is likely to continue innovation activities in the same direction despite
institutional changes, or other outside forces (Garud and Rappa 1995; Furman et al. 2010).
Hypothesis 2a: Inventors from offshoring with experience in monolithic integration firms
tend to leave offshoring firms and migrate to non-offshoring firms and non-focus firms.
Hypothesis 2b: These monolithic integration inventors continue innovation activities in
monolithic integration after leaving.
3. Methods
3.1. Data Sources
To explore the hypotheses in the preceding section, we triangulate data from industry
archives, buyers guides, SEC filings, phone-based structured interviews, inventor resumes, and
hand-classified USPTO patent data to quantify firms’ and individuals’ innovation activities,
firms’ extent of offshoring and other control variables at the firm-level and individual-level.
3.1.1. Innovation Activities
To quantify firms’ and individuals’ innovation quantity and direction, we use patent data
from the USPTO database. While not without their limitations, patents have been shown to be a
reasonable indicator of innovation activities (Hall et al. 2001). In past research studies, patents
have been used to evaluate the innovation performance of firms (Fifarek et al. 2008) and
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individuals (Fleming et al. 2007), and to track the mobility of the patent holder (Almeida and
Kogut 1999).
The USPTO patent database has a thorough U.S. patent classification system based on
technical specialties – each patent is classified into one or more technical classes and subclasses
related to its invention (Hall et al. 2001; 2010; USPTO 2010). Based on this classification system
and its detailed definitions for each class as well as the contextual optoelectronics expertise of
one of our authors, we hand-identified patent classes and subclasses within the field of
optoelectronics as well as which of those patents qualify as being in integration (hybrid and
monolithic). We identified in total 11 classes associated with optoelectronics innovation7 and one
subclass 385/14, titled “Integrated Optical Circuit”, that covers integrated optoelectronics
technologies8. According to our classification system, there are 196,439 optoelectronic patents
and 3,326 integrated patents (monolithic and hybrid) in total in the USPTO database up through
December 2010. Our focus firms (those identified as being within our research scope (see 3.1.5))
have 4737 optoelectronic patents and 340 integrated patents. We manually classified the 340
integrated patents into monolithic and hybrid designs leveraging the expertise of one of our
authors in collaboration with a hired research assistant with a bachelors degree in materials
science. Based on this hand-classification, our focus firms have 209 monolithic integrated
patents and 131 hybrid integrated patents.
While USPTO patent data can serve as a proxy for firms’ and individuals’ innovation
activities in certain technology fields, the USPTO database has many challenges, including
ambiguities in the names of assignees and inventors. These ambiguities comes from many
sources, including misspellings, inconsistencies (i.e. middle names, alias, initials, acronym, and 7 The patent classes and subclasses that we identified as optoelectronic innovations are 250/220‐339 and 551, 257/13, 21, 52‐56, 59, 79‐103, 113‐118,184‐189, 225‐234, 257‐258, 290‐294 and 431‐466, 353/, 356/, 359/, 372/, 385/, 398/, 438/24‐25 and 27, 720/ and G9B/7. 8 This subclass, 385/14, includes wide range of integrated designs covering both monolithic and hybrid designs.
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abbreviations) and changes in or different submissions of names (i.e. corp. and LLC.) Many
research groups work on this issue (Hall et al. 2001; Fleming et al. 2007; Bessen 2009). The
Fuchs Lab Optoelectronics Patent Database that we use in this paper builds on the algorithm
used in Fleming (2007) to disambiguate the assignee and inventor names in the optoelectronic
patent database. Building on these initial disambiguation results, we subsequently hand-cleaned
all data associated with our focus firms firms and inventors within these firms.
Finally, it is important to note that there can be a multiple-year gap between the time
patents were filed and the time they were issued. While only 22.24% of patents come out in the
first year, 99.41% of patents have come out after five years. This incompleteness would bias our
observations of firms’ and individuals’ innovation in the final four years of our sample. In an
attempt to address the above issue, we collected information on firms’ patent applications which
are available for the 2000-2011 period. Our goal in collecting this data was to determine
feasibility of an extended time period beyond our current 2006 cut-off (the cut-off being due to
the delay between patents being filed and patents being granted). We found that the current
available application data from the USPTO database is unfortunately not suitable to extend the
length of our observation period. We discuss this data and our analysis thereof in Appendix 1.
Thus for the analyses in this paper, we exclude data post-2006.
3.1.2. Extent of Offshoring
There are several methods to quantify firms’ extent of offshoring9. As used in this paper,
offshoring is the relocation of manufacturing facilities from a home, developed country to a
developing country. We gathered public firms’ offshoring information (i.e. offshoring dates,
applications, and manufacturing sites) from Securities and Exchange Commission (SEC) filings.
9 For example, the most appropriate depiction of a firm’s extent of offshoring might include the initial decision time of moving offshore, the first offshoring date, the length of time offshore, or the percentage of facilities offshore.
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We also conducted structured interviews with private and public firms to collect private firms’
offshoring data and public firms’ offshoring data missing from their SEC filings. To gather this
missing data, we created a structured interview questionnaire that we sent in advance to the firms,
and then completed with ta representative from each company by phone. As a consequence, in
this paper’s analyses, we are able to distinguish between the number of years that only assembly
activities and the number of years that both assembly and fabrication activities were overseas in
a developing country when characterizing firms’ offshoring.
3.1.3. Other Variables
To understand the individual firm environment within which the firms are operating, we
also collect annual firm revenues, profits, R&D expenditures, employee numbers, and merger
and acquisition data from SEC filings and the previously-mentioned structured interviews with
representatives from each firm. In addition, to represent the overall industry environment, we
gained access to industry-wide optoelectronic revenues from market reports and field-wide
patent productivity in optoelectronics, broadly speaking, as well as in optoelectronics integration
from the Fuchs Lab Optoelectronics Database. These data represent control variables that may
also contribute to firms’ innovation. Finally, to better track individuals’ mobility, and associated
quantity, locus and direction of innovation, we collect the professional resumes of our strong
integration inventors10. These resumes, which complement the patent data, allow us to locate
inventors accurately between patents and even if they stop patenting or migrate to other fields.
10 In total we were able to collect 39 of our 106 strong integration inventors’ resumes. We leveraged inventor contact information provided to us by the top three professional societies in optics to contact integration inventors’ from our database. When we were able to reach inventors by phone or email, we would ask them to send us their professional resumes directly. We also were able to reach several inventors on LinkedIn. Again, in reaching out them requested their most current resume. In cases where they didn’t respond we used the data posted on LinkedIn.
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3.1.4. Scope Definition
This study focuses on small and medium sized U.S. firms that manufacture active
optoelectronic components for telecommunication applications and inventors who have patented
within these firms.
3.1.5. FirmScope
To identify all firms whose activities fell within our scope, we triangulated data from
seven sources, ranging from industry market analyses, to buyers guides, to trade association
workshop participation, to industry trade fairs, to the USPTO patent database to identify all firms
manufacturing optoelectronic components for the telecommunications industry11. While these
sources all shed insights into firms in optoelectronics, the raw sources cover different countries,
institutions and market scopes. To deal with these differences, we manually classified firms by
different countries and applications. In addition to the list of firms producing and selling
optoelectronic components for telecommunications markets that we created from these seven
sources, we also wanted to make sure not to overlooks firms that might have innovation activities
for the same industry, but not yet sufficient market presence to show up in the above sources.
After interviews with industry experts we triangulated two sources, OVUM market reports (our
only source that focused exclusively on firms aiming to make optoelectronic components for the
telecommunications industry) and the USPTO database, to identify any remaining optoelectronic
component firms for telecommunications that may not yet have sales but work on integration
(monolithic or hybrid). From this data, we were able to identify 16 firms having at least one
11 Ovum Annual Telecommunications Industry Optoelectronic Component Manufacturers Annual Revenue and Market Share Survey (2005‐2009), LightCounting Optical Transceiver and TOSA/ROSA Vendor List (2010), Reed “Optoelectronics—A Strategic Study of the Worldwide Semiconductor Optoelectronic Component Industry to 2008” (2003‐2005), Strategies Unlimited “Opto 50 ‐ A Review of the World's Leading Manufacturers of Semiconductor‐Based Optoelectronic Components 2000” (1998‐1999), The Optical Society of America (OSA) OFC Buyers’ Guides (2004‐2009), Optoelectronics Industry Development Association (OIDA) Optoelectronic Component Manufacturers for Telecommunications Workshop Attendee List (1998, 2005), United States Patent and Trademark Office (USPTO) (1976‐present)
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integrated patent (monolithic or hybrid) who also reported in the OVUM market reports and
another 12 firms having three and more integrated patents (monolithic or hybrid) that do not
show up in the OVUM market reports but were focused on selling optoelectronic components to
the telecommunications market12. (See Table 1)
Table 1 Research Firm Scope13
Firms Manufacturing Anything Offshore by 2009 Firms Manufacturing Anything Onshore by 2009Name Total Int.
Patent Total Monolithic Patent
2009 Revenue
Name Total Int. Patent
Total Monolithic Patent
2009 Revenue
JDSU† 22 12 $1.29 B Infinera 70 67 $309 M
Finisar† 28 8 $541 M Lightwave * 20 13
Bookham† 25 20 Prima Luci * 6 3
Agilent 22 9 $4.48B SDL 5 5 Avago 16 2 $1.48 B LNL * 4 3
Agere† 14 9 Optronx * 4 0
Avanex† 13 11 Teraconnect *
4 0
Emcore† 11 3 $176 M Xponent * 4 3
NeoPhotonics
*† 10 10 $155 M LSI 3 2 $2.22B
TriQuint† 8 4 $654 M Axsun * 2 0
Kotura *† 7 5 $7 M
OCP† 4 2
Picolight *† 4 4 AFOP 2 0 $30 M
CyOptics *† 2 0 $63 M
Oplink† 2 1 $144 M
Opnext† 2 0 $319 M
New Focus† 1 0 * Private firms
† Offshore post‐1999 Gray: Firms with no monolithically integrated patents ( this use of grey coloring is continued in the text for the remainder of the paper)
12 We used having one integrated patent (monolithic and hybrid) as a threshold for including firms from the OVUM market report to filter out those that never worked on integration even if they have significant market share. We used having three integrated patents (monolithic and hybrid) in the USPTO database as the criteria to select highly innovative firms. We then used a combination of web searches to confirm if these firms are U.S. firms targeting selling optoelectronic components to the telecommunications market. For both the OVUM and the USPTO databases we used publically available resources on the web to confirm which firms had U.S. headquarters, and were thus appropriate to our scope. Finally, we triangulated our results against our five other data sources before finalizing our selection of the 28 firms. 13 Within these 28 focus firms, as of 2011, 12 of the firms no longer exist— four of them exited, two merged with each other, six were acquired, and one was diversified.
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3.1.6. Inventor Scope
Besides firm activities, we also explore the activities of individuals with one or more
optoelectronics patents within our 28 focus firms. To observe inventors’ innovation trajectories
and how these may differ from firms, we track the inventors’ patents and their movement. We
initially divide the inventors who patent at our focus firms into a target group and two control
groups: Our target group is inventors at our focus firms with strong capabilities in integration
(more than two integrated patents), in other words our ‘focus inventors”. In addition we have
two other groups, 1) integration “dabblers”— (inventors at our focus firms who only have one or
two integrated patents, and 2) a control group of non-integrated inventors (inventors at our focus
firms who do not have integrated patents). We chose the cut-off of three integrated patents
(monolithic or hybrid) based on differences we were seeing in inventor activity in the data. We
see this cut-off as representing the difference between inventors who have strong interest or
capabilities in integration innovation (monolithic or hybrid), versus those who may have had
brief involvement in a related project. We have in our target group 106 “focus” inventors (with
more than two patents in integration). Of these focus inventors with strong capabilities in
integration, 99 have one or more monolithic patents, and seven have only hybrid patents.14 In
our two control groups we have 383 integration “dabblers” with two or fewer patents in
integration, and 2907 non-integrated inventors.
Within our integrated inventor group, we divide the integration inventors into four subgroups:
those who have monolithic patenting experience at our focus firms, those who have monolithic
patenting experience prior to being our focus firms but have no monolithic patents at our focus
14 We had already completed the classification of monolithic versus hybrid patent classes for integrated patents within our focus firms. To complete the inventor analysis, we in addition hand‐classified the monolithic versus hybrid patents granted to inventors at firms they worked in before and after working in our focus firms.
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firms, those who have monolithic experience only post being in our focus firms (and no
monolithic patents prior to or at our focus firms), and those who only have hybrid patents at our
focus firms and no prior or post monolithic patenting experience. We further divided each of the
above integration subgroups into two parts: those who ever worked at offshoring and those who
never worked at offshoring firms. In the non-integrated group, we also divided the inventors into
the same two parts: those who ever worked at an offshoring firm and those who never worked at
an offshoring firm.
3.2. Regression Models
Our primary research question focuses on the relationship between patenting and going
offshore. In this section, we present three regression models to address this question. First, we
model the relationship between the firms' number of yearly patents and the extent of their
offshoring using a negative binomial regression (while controlling for firm size, R&D strategy.
the burst of the telecommunications bubble, as well as the current innovation status of the
field). This approach correctly models the distribution of our patent count data and treats the
firms' yearly patents as individual observations. We then turn to a Cox proportional hazards
regression to model the instantaneous rate of patenting over time. This model accounts for a
non-constant patenting rate over the year and allows for firm longitudinal effects over
time. Finally, we similarly use a Cox proportional hazards regression to model the risk of going
offshore each year. This model uses cumulative patent counts to represent innovation capability
and similarly controls for firm size, R&D strategy, the burst of the telecommunications bubble,
and the current innovation status of the field.) The variables and subscripts we use in the models
are described in Table 2 below. In addition to our quantitative analysis, to gain better insights
into each firm’s activities, we leverage the full descriptive data available through the SEC filings
and firm structured interviews to create additional insights into each firm and inform our
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Table 2 Variables and Subscripts
Subscript Description Purpose Role
Y Year
Time
D Day y(d) Year for the day on which a firm filed a patent
A {monolithic, hybrid, non‐integrated} Type of patent (hand classified)
Paten
t
Category
B {integrated, non‐integrated} Field‐wide type of patent
Variable Description Purpose Role
Pa,y Patent count for year (y) of patent type (a) Yearly innovation
Dep
endent
Variable
hpat,a(d) Risk of patenting in day (d) of patent type (a) Innovation risk
hoff(y) Risk of moving any facilities offshore in year (y) Offshoring risk
Ca,y Cumulative patent count in year (y) of patent type (a) Existing innovation capability
Indep
endent
Variable
Ay‐1 Number of full years that firm has only assembly activities offshore (y‐1: one year lag)
Extent of offshoring
By‐1 Number of full years that firm has both assembly and fabrication activities offshore (y‐1: one year lag)
Ay(d)‐1 Number of full years that a firm has only assembly activities offshore (y(d)‐1: one year lag)
By(d)‐1 Number of full years that a firm has both assembly and fabrication activities offshore (y(d)‐1: one year lag)
h0(y) Unspecified baseline rate in Cox offshoring rate models for year (y) Baseline risk
Control
Variable
h0(d) Unspecified baseline rate in Cox patent rate models for day (d)
Qy Revenue for year (y) Firm size lnQy Natural logarithm value of Revenue for year (y)
lnQy(d) Natural logarithm value of Revenue for year (y(d)) Ry‐1 R&D spending for year (y‐1: one year lag)
Firm R&D strategy
lnRy Natural logarithm value of R&D spending for year (y) lnRy(d)‐1 Natural logarithm value of R&D spending for year (y(d))
(y(d) ‐1: one year lag) Fb,y Total patents in the U.S. technical field of optoelectronics
for year (y) of patent type (b) Trends of technical field
Fb,y(d) Total patents in the U.S. technical field of optoelectronics for year (y(d)) of patent type (b)
Trends of technical field
Ty Telecom bubble dummy variable for year (y) Telecom bubble Ty‐1 Telecom bubble dummy variable for year (y)
(y‐1: one year lag) Telecom bubble
Td‐365 Telecom bubble dummy variable for day (d) (d‐365: one year lag)
Telecom bubble
Page 19 of 44
interpretation of the quantitative results. Finally, we incorporate insights from this descriptive
analysis back into our regression models in terms of fixed effects for firm strategies.
3.2.1. The Relationship between offshoring and innovation
3.2.1.1. Negative Binomial Models
We use negative binomial models15 to gain an insight into the relationship between firms’
innovation activities (monolithic, hybrid and non-integrated patent numbers) and their extent of
offshoring (number of full years that only assembly activities and number of full years that both
assembly and fabrication activities are offshore). In these models, since moving facilities and
products overseas does not happen within a single night or even a single month and often firms
have their old facility still running in the home country for the first few months, we define the
first “full” year of offshoring as the year after offshoring is documented in the SEC filings or
firm structured interviews. In addition, for both our offshoring and our R&D spending variables,
we then use a one-year-lag to account for the delay between when R&D is conducted and
subsequent patenting activities16. As the role a firm’s revenue in a given year may play in its
R&D outcomes that same year versus the next is less clear17, we use an unlagged revenue
variable in our main model, but explore using instead a lagged revenue variable in our robustness
tests. We consider a firm’s yearly revenue as a proxy of firm size 18 and its yearly R&D spending
as a proxy of firms’ R&D strategy. To indicate the overall economic and innovation environment
15 The distribution of patent numbers is right‐skewed count data; therefore we use negative binomial regression model. 16 We learned from our interviews that it takes on average one year after R&D is started for patents to be filed. Thus we would expect the effect of offshoring not to appear immediately but one year later. Similarly, R&D Spending this year will affects firms’ next year patent productivity. 17 Since there is some relationship between R&D spending and revenue, it could be argued to be appropriate to lag the revenue data, as well. That said, revenue in a given year may also affect how many patents a firm can afford to file in that year, and then not lagging the revenue data could be argued to be appropriate. 18 The other possible proxy of firm size is employee number. We have employee numbers from 16 firms and 112 observations for employee data (but revenue data from 19 firms and 158 observations for revenue information). Also, the lack of employee number of certain firms in certain year force us ignore some main integration producers, like Infinera, and therefore bias our regression results a lot.
Page 20 of 44
in the U.S. optoelectronic industry, we use the total U.S. integrated patent numbers (monolithic
and hybrid) and non-integrated patent numbers as proxies for the overall innovation environment
in the regressions with integrated and non-integrated patents as the dependent variable,
respectively.
Our negative binomial regression models at firm level is as follows:
, ,
In addition to controlling for possible confounding firm effects, we also include firm
fixed-effect variables in our negative binomial regressions to analyze the effect within firms
(Appendix 2).
3.2.1.2. Cox Proportional Hazard Model
In addition to using negative binomial patent count models, we also model the firms’
patenting rates using Cox proportional hazards regression with repeated events clustered by firm
(Sorensen and Stuart 2000; Sosa 2009; Sosa 2011). Unlike the negative binomial model, this
approach does not assume that the patent rate is constant over a year or that a firm’s numbers of
patents each year are independent. Instead we analyze the risk of an event happening (here, a
particular type of patenting19) to a particular firm over time. Like in Sosa 2011, we define the
initial risk of a firm patenting as starting on the day before the firm’s first accepted patent
application file date. The risk of subsequent patenting events starts instantly after the previous
event happens.
We model the risk of patenting for each type of technology (monolithic, hybrid, or non-
integrated) as follows:
, exp ,
19 Our USPTO data sources allow us to access the precise filed date of a patent, and by the filed date we indicated an event happening.
Page 21 of 44
In this model we use the same theoretical as control variables as the negative binomial
model – revenue, R&D expenditures, total patenting in the field of optoelectronics (integrated
versus non-integrated), and the burst of the telecommunications bubble. We use the natural log
of revenue and R&D spending, highly right-skewed variables, in our patent rate model to
improve model fit. (R&D spending remains lagged by one year.) Note that while the dependent
variable is a daily measure, these controlled variables, except for the telecommunications bubble
burst, are measured yearly.
3.3. Relationship between innovation capability and risk of offshoring
We use Cox proportional hazard regressions to model the risk of a firm going offshore
given the firm’s innovation capability (monolithic, hybrid, and non-integrated cumulative patent
numbers). We set the start of risk for going offshore for each firm as the year when the firm first
provides financial data (with the exception of one firm whose financial data was available for a
full decade prior to the other firms – its start date is set at 1992 for consistency with the general
observation period for the other firms). We observe each firm yearly until either the firm has
exited the market or 2006, the end of our observation period. In this model, going offshore is
defined as moving any type of facility (assembly or fabrication) offshore.
We model the risk of going offshore as follows:
exp , , , ,
,
We continue to use the natural log of revenue and R&D spending to improve model fit. Unlike
the previous negative binomial and patent rate hazard models, we do not lag our R&D spending
as we do not expect the same delayed effect on offshoring that we would expect for a patent
being granted. We include the firm cumulative patent numbers for all three technology types as
Page 22 of 44
proxies for the firms’ innovation capabilities prior to going offshore. As in the previous models,
we include controls for the burst of the telecommunications bubble and all integrated or non-
integrated patents in each year for the U.S. optoelectronic field.
4. Results
4.1. Firm Regression Results
4.1.1. Relationship between offshoring and innovation
4.1.1.1. Negative Binomial Model
The regression results (Table 3) show that offshoring of just assembly activities and of
both assembly and fabrication activities is associated with a decrease in patenting in monolithic
integration. Controlling for firm revenue, firm R&D spending, the burst of the
telecommunications bubble, and the total integrated optoelectronic patent activity in the U.S.,
each additional year a firm has both assembly and fabrication activities offshore is associated
with a 0.59 decrease in yearly monolithic patents. These results match the economics found in
Fuchs and Kirchain (2010), which show that manufacturing overseas reduces the economic
viability of producing monolithically integrated technologies. Our results then take the Fuchs and
Kirchain (2010) results a step farther, showing that the firms not only lose incentives for
producing the emerging technology – they also reduce their innovation activities back home in
that same technology. It is particularly interesting that the statistically significant relationship
between offshoring and reducing innovation activities in monolithic integration is only found
once the firms move fabrication capabilities offshore – the specific manufacturing capabilities
key to producing the monolithically integrated technology.
The regression results for the relationship between offshoring and innovation in
technologies other than monolithic integration are equally interesting. While the offshoring of
only assembly activities is not associated with a statistically significant change in monolithic
Page 23 of 44
integration patenting activities, it is associated with an increase in both hybrid integrated and
non-integrated patenting. Controlling again for firm revenue, firm R&D spending, burst of the
telecommunications bubble, and the total non-integrated optoelectronic patent activities in the
U.S., each additional year a firm has only assembly activities offshore is associated with a 0.79
increase in yearly hybrid patents and with a 0.71 increase in yearly non-integrated patents. The
increase in hybrid patenting is not surprising – hybrid integration is in many ways a labor- and
assembly-oriented substitute for monolithic integration that lacks the performance advantages of
monolithic integration could more easily be performed in an overseas facility. The increase in
non-integrated patenting is difficult to interpret without an in-depth understanding of the specific
technologies being patented. While we ran class and subclass analyses on these non-integrated
patents and also read a random sampling from each class, no immediate firm- or industry-level
trends were apparent. If these technologies are advanced technologies in other areas or directions,
this result could be seen as supporting past work by economists that suggests offshoring enables
a firm to save costs and thereby direct more resources toward higher-value-added activities (e.g.
Farell), (even if not to the emerging technology of monolithic integration). That said, with the
exception of one sub-subclass (372/50.1), which seemed to actually belong with monolithic
integration,20 the sample of patents from each major non-integrated class and subclass that we
read seemed oriented largely towards assembly activities.
To begin assessing the robustness of our regression results, we run analyses on two
additional models (Appendix 2: Tables A2.1 and A2.2). First, we explore controlling just for
Infinera. Infinera may be a possible outlier in our firms because it never goes offshore and holds
32% of all of our focus firms’ patents in monolithic integration. These two characteristics of
20 We ran a robustness analysis grouping this sub‐subclass instead with monolithic integration and find the same results reported in both the main model and the subsequent robustness analyses.
Page 24 of 44
Infinera may overly influence our model. Here, the results of our previous models hold.
Specifically, the effect size of moving both assembly and fabrication offshore on monolithic
integration decreases slightly, we lose marginal significance on moving only assembly offshore,
and the burst of the telecom bubble loses significance. The remaining effects are relatively
similar, and the significance levels do not change. Second, we explore including firm fixed
effects for all firms into our regression to control for individual firm strategies. Here, the results
suggest that the offshoring (whether of just assembly or both assembly and fabrication activities)
is not associated with a statistically significant change in innovation. However, the number of
observations per firm is very small; these results should not be seen as conclusive. As a sanity
check, we also explored the analysis without the telecom bubble burst (which potentially could
exacerbate sample size issues), and find similar results. It is worth noting that in both cases (with
and without the bubble burst) many of the firm fixed effect coefficients are statistically
significant and vary in magnitude and direction. This finding may imply that each firm or distinct
groups of firms may have divergent behavioral trends that are associated with their innovation
trajectories.
Given the above-described results when adding firm fixed effects, we went back to the
data to develop a descriptive understanding of the strategies of individual firms, and whether
these strategies naturally fell into distinct groups. Whereas incompleteness of data in some
control variables limited which observations we were able to include in our regression analyses,
in the descriptive analyses we were not held to the same limitations. Leveraging the more
extensive data available through the SEC filings and our firm structured interviews, we first
created a descriptive write-up of each firm. Using methods common to case study analysis
(Eisenhardt 1989), we then unpacked the trajectories of groupings of firms to help inform our
interpretation of the quantitative results. (See Appendix 3 for our initial ranking of firms by
Page 25 of 44
different variables, and Appendix 4 for our descriptive analysis.) As described in Appendix 4,
we found that our firms fell into one of five main categories: the “all-onshore strategists,” the
“all-offshore strategists”, the “hedgers” (fabrication onshore, assembly offshore), the “late
offshorers” (don’t go offshore immediately after the burst of the telecommunications bubble in
the first wave of firms, but instead go after 2005), and the “early exiters” (after the burst of the
bubble, either are acquired or go out of business by 2004).
Having completed this descriptive analysis of the firms and their strategies, we then
explored fixed effects associated with these five groupings of firm strategies (Appendix 2: Table
A2.3). Unlike the firm fixed effects, where we suffered from small numbers of observations for
some firms, the robustness analysis leveraging these strategy groupings is more statistically
stable. In this analysis, we are – similar to firm fixed effects – able to adjust for firm strategy,
but now in addition we can see the (adjusted) association between each type of strategy and
patenting. Our results for the relationship between number of years offshore and patenting (both
for offshoring only assembly and for offshoring both assembly and fabrication) are broadly
consistent in magnitude and significance to the primary model shown in Table 3. The inclusion
of firm strategies results in a loss of significance for the telecom bubble burst. While we see no
statistically significant relationship between firm strategy and monolithic patenting, we find, in
keeping with our theory, a negative association between “all-onshore” and “late-offshore”
strategies and non-integrated patenting. Given the low counts in monolithic patenting, we are
not surprised that it would be difficult for these patent counts to see an effect.
As with firm fixed effects, we also explored the analysis without the telecom bubble burst
(which potentially could exacerbate sample size issues). (See Appendix 2 Table A2.4.) With
respect to the relationship between a firm’s strategy and patenting (regardless of number of years
offshore), once we remove the telecommunications bubble, all strategies except keeping all
Page 26 of 44
manufacturing onshore – specifically, being “all-offshore”, a “hedger”, or an “early exiter” – are
associated with a decrease in monolithic patenting. Again, these results match our theory. As
with the analysis that included the control for the telecommunication bubble, while the “all-
onshore” and “late-offshore” groups do not have a statistically significant association with
monolithic patenting, they have a negative association with non-integrated patenting. These
results suggest that the firms with strategies that keep their fabrication onshore (either everything
onshore, just fabrication, or not going offshore in the first wave immediately after the bubble
burst) may be more likely to have fewer non-integrated patents, compared to firms with more
aggressive offshoring strategies.
In conclusion, the above analyses only present correlations between number of years
offshore and firms’ quantity and direction of innovation. Building on the above strategy fixed
effects, in section 4.1.2 below, we explore what type of firms are more likely to move offshore,
and in particular whether firms with lower capabilities in monolithic integration (or other
common traits like being publicly traded) are more likely to move. This said, it is worth noting
that given the economics shown in Fuchs and Kirchain (2010), even if we were to find that the
weakest firms in innovation (or in monolithic innovation) are those most likely to move overseas,
it may not matter for national innovation outcomes if the firms that stay in the U.S. to pursue the
emerging, monolithically integrated technology cannot survive in the short term. As shown
earlier in Figure 1, firms that move manufacturing overseas are able to produce the old, discrete
technology in Developing East Asia at a significantly lower cost than they can produce either the
emerging, monolithically integrated or the old, discrete technology in the U.S. Thus, firms that
move overseas and produce there the prevailing technology will be able to dramatically out cost-
compete firms that stay in the U.S. and attempt to produce there the emerging, monolithic
Page 27 of 44
technology until markets (such as the sensor or computing markets) are willing to pay for the
added performance provided by the monolithically integrated technologies.
Table 3 Negative Binomial Regressions on Focus Firms
Monolithic integrated Hybrid integrated Non‐integrated
Assembly Only Offshoring
y‐1
‐0.53 . (0.28)
0.79 ** (0.26)
0.71 *** (0.18)
Both Offshoringy‐1 ‐0.59 ***
(0.15) ‐0.009 (0.09)
‐0.02 (0.06)
Revenuey ‐4.6e‐11
(1.7e‐10) 1.9e‐10 (1.5e‐10)
2.4e‐10 * (1.0e‐10)
R&D Spendingy‐1 1.4e‐09.
(1.1e‐09) ‐3.6e‐10 (1.3e‐09)
3.9e‐10 (7.1e‐10)
U.S. Int. Patenty 0.002
(0.005) 0.03 *** (0.006)
U.S. Non‐int. Patent
y
7.6e‐04 *** (1.2e‐04)
Telecom bubbley‐1 0.92 *
(0.73) ‐0.89 (0.59)
‐0.54 ** (0.21)
Constant ‐1.04 (0.75)
‐4.26 *** (0.69)
‐1.09 (0.61)
N= 152 152 152
AIC 325.21 245.71 1093.8 Robust standard errors are in parentheses.
Signif. codes: ‘***’ p< 0.001; ‘**’ p< 0.01; ‘*’ p< 0.05; ‘.’ p< 0.1
4.1.1.2. Cox Proportional Hazard Model
In contrast to negative binomial models, a Cox proportional hazard model allows us to
incorporate varying patent rates over a year and that a firm’s number of patents across years may
be correlated. The results of the patent hazard models (Table 4) show that offshoring both
assembly and fabrication activities is associated with a decrease in patenting in monolithic
integration. Controlling for offshoring only assembly activities, firm revenue, and firm R&D
spending, each additional year a firm has both assembly and fabrication facilities offshore is
associated with a marginally significant rate decrease of 26% for firms to file a monolithic patent.
These results match the economics found in Fuchs and Kirchain (2010), which show that
manufacturing offshore reduces firms’ incentives for and the economic viability of producing the
Page 28 of 44
emerging monolithic products. Our results also extend these past findings by suggesting that in
following these economics, firms not only stop producing monolithically integrated products but
also reduce their innovation activities in the emerging technologies. Particularly interesting is
that the statistically significant relationship between offshoring and reducing innovation
activities in monolithic integration is only found once the firms move fabrication capabilities
offshore – the specific manufacturing capabilities key to producing the monolithically integrated
technology.
In addition to the results on the relationship between offshoring and innovation in the
emerging, monolithic technology, we also explore using Cox proportional hazards regression to
model the relationship between offshoring and innovation in the prevailing non-integrated
technologies. Here, interestingly, we find the opposite results from the monolithically integrated
technology. Controlling for offshoring only assembly activities, firm revenue, and firm R&D
spending, each additional year a firm has both assembly and fabrication facilities offshore is
associated with a rate increase of about 27% for firms to file a non-integrated patent. These
results could be seen as supporting past work by economists that suggest offshoring enables a
firm to save costs and thereby direct more resources toward higher-value-added activities (e.g.
Farell), (even if not to the emerging technology of monolithic integration.) It is interesting,
however, that according to this analysis firms must move both assembly and fabrication offshore
to gain to gain the theoretical cost savings that would lead to increased innovations according to
economists. Subsequent work should explore the technical nature of these non-integrated patents
and their disruptiveness compared to the monolithically integrated patents.
Surprisingly, in contrast with the negative binomial model results, here it is moving both
assembly and fabrication offshore (not moving only assembly offshoring) that is associated with
a statistically significant increase in non-integrated patenting. In looking at the descriptive details
Page 29 of 44
of our data, one firm, Agilent – which moves both assembly and fabrication offshore in 1999,
has a disproportionately large spike in its non-integrated patenting (compared to upward or
downward patenting rates of other firms) at the beginning of its offshoring period. After this
initial boost, however, Agilent’s non-integrated patenting dramatically declines for the duration
of our observation period. This spike in Agilent’s innovation activities combined with Agilent’s
consistently larger numbers of patents may be overly influencing the results, and is worth future
study to understand their strategy21. For example, were they patenting previously unpatented
technologies in preparation for losing employees associated with offshoring?
Table 4 Cox Patent Rate Models on Rate of Patenting in Monolithic and Non‐Integrated Technologies
Monolithic Hybrid Non‐Integrated
Assembly Only Offshoring
y(d)‐1
0.29
(1.04)
1.32
(0.31)
1.57
(0.29)
Both Offshoringy(d)‐1
0.74 .
(0.18)
1.03
(0.07)
1.27 *
(0.11) Revenue
y(d) 0.59 ***
(0.12)
1.09
(0.06)
1.14
(0.15) R&D Spending
y(d)‐1 2.03 ***
(0.18)
1.07
(0.12)
1.26
(0.15) U.S. Int. Patent
y(d) 1.01
(0.009)
1.03 ***
(0.008) U.S. Non‐int. Patent
y(d) 1.001 ***
(1.7e‐05) Telecom bubble
d‐365 0.22 .
(0.84)
0.08 **
(0.93)
0.53 *
(0.27) N= 122 85 2964 Allcoefficientsareinhazardratios.Notethatcoefficientslessthan1areequivalenttonegativeassociations.Allregressionsarerepeatedeventsclusteredbyfirmwithrobuststandarderrors(inparentheses)Signif. codes: ‘***’ p< 0.001; ‘**’ p< 0.01; ‘*’ p< 0.05; ‘.’ p< 0.1
4.1.2. Relationship between innovation capability and risk of offshoring
The Cox proportional hazards regression modeling the risk of going offshore indicates that
cumulative non-integrated patenting (the innovation capability of non-integrated design) is marginally
21 When running the proportional hazards regression without Agilent included, our results become similar to those reported in the negative binomial, where the relationship between moving only assembly offshore and non‐integrated patenting is positive and significant and the relationship between moving both offshore and non‐integrated patenting is non‐significant, but has a negative coefficient.
Page 30 of 44
associated with an increase in the probability of offshoring any type of facility. Controlling for firms’
cumulative monolithic and hybrid patenting, firm revenue, firm R&D spending, the burst of the
telecommunications bubble, and field-wide trends in integration and non-integration patenting; each
additional cumulative non-integrated patent is associated with a 1% increase in the risk of moving any
facility offshore (marginally significant). Not surprisingly, we also find a positive correlation between the
burst of the telecommunications bubble and offshoring (marginally significant).
These Cox proportional hazard results for probability of offshoring counter the theory that firms
that have low capability in patenting (monolithic, hybrid and non-integrated) would have a higher
probability to go offshore. In contrast, the positive relationship between non-integrated patenting and
going offshore may suggest that firms with a breadth of capabilities perceive that they have greater
competencies to leverage in going offshore. Our results also do not support a theory that firms that were
weak in monolithic integration would be more likely to go offshore. Table 6 below shows correlations
between the three different types of patenting. The results show that a firm’s monolithic, hybrid and non-
integrated cumulative patenting are all positively correlated with each other. These results suggest that a
firm that has a high innovation capability (large cumulative patents) in the non-integrated design is likely
to also have high innovation capability in monolithic and hybrid designs.
To assess the robustness of our results, we also model the rate of a firm moving only assembly
offshore and the risk of moving both assembly and fabrication offshore. In addition, we explore the
relationship between yearly patenting rates (instead of cumulative patent numbers) and the risk of
offshoring for all three definitions of offshoring.22 Similar to the cumulative results, the results of the
offshoring hazard models with yearly patenting rates show that yearly non-integrated patenting is
associated with an increase in the risk of any type of offshoring (significant at the 0.05 level) and an
increase in the risk of moving both assembly and fabrication offshore (marginally significant). None of
the other models found a statistically significant relationship between firm’s patenting and the rate of
22 To recall, our three definitions of offshoring for the offshoring hazard models are any type of facility offshore, offshoring only assembly, or offshoring both assembly and fabrication facilities.
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offshoring. These results suggest that a firm’s innovation capability is either not associated with going
offshore or at best positively associated.
Table 5 Cox proportional hazard regression results on the risk of moving any facility offshore
Rate of offshoring any type of facility
Cumulative monolithic patenty 0.94 (0.05)
Cumulative hybrid patenty 1.22 (0.27)
Cumulative non‐integrated patenty 1.01 . (0.006)
Revenuey 1.39 (0.36)
R&D spendingy 0.64 (0.44)
U.S. Int. Patenty 0.98 (0.03)
U.S. Non‐int. Patenty 1.00 (7e‐4)
Telecom bubbley 22.06 . (1.82)
N 131 Allcoefficientsareinhazardratios.Weincluderobuststandarderrorsinparenthesis.Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Table 6 Correlation between each type of cumulative patents
Cumulative monolithic
Cumulative hybrid Cumulative non‐integrated
Cumulative monolithic 1 0.435 0.398 Cumulative hybrid ‐ 1 0.621 Cumulative non‐integrated
‐ ‐ 1
4.2. Inventor Results
While firms that offshore may reduce their innovation efforts in monolithic integration,
inventors need not take the same trajectory as firms. Table 7 shows the percentage of (or
probability that) people within our target strong integration group versus each of our control
groups (as described earlier under Inventor Scope (section 3.1.6)) take particular actions. The
actions we observe are as follows: (1) eventually leave the focus firm, (2) conditional on leaving
Page 32 of 44
the focus firm leave to an onshore firm (if at an offshoring firm) versus to an out-of-focus firm,
and (3) conditional on leaving and to what type of firm they go, keep patenting in monolithic
integration.23 We use t-tests to assess whether the observed differences between groups are
statistically significant. (See Table 8 and Appendix 5)
4.2.1. Do the inventors at the offshoring firms with strong capabilities in monolithic integration leave, and keep innovation in the emerging technology going at other institutions?
In analyzing movements of our inventors at the offshoring firms with strong capabilities
in monolithic integration, our results are contrary to our expectations:
On average, 43% of inventors with strong capabilities in monolithic integration (and who
patent at the focus firms in monolithic integration) eventually leave. Contrary to what we might
have expected, there is no statistically significant difference in the leave rates of these inventors
whether they are at an offshoring firm or a non-offshoring firm. In contrast, on average only
17% of inventors with only one or two patents in integration or with no patents in integration
eventually leave their firms (inventors with no patents in integration have a slightly lower
probability to leave if they are at an offshoring firm, but otherwise there are no statistically
significant differences between the various groups without strong patenting capabilities in
monolithic integration).
Of the inventors with strong innovation capabilities in integration who have patented at
23 Note: the total number of “focus” integrated inventors shown in Table 7 is 98 instead of 106 due to us, given limited space, not including in the table two groups of inventors: seven inventors with three or more integrated patents who have monolithic experience only post being in our focus firms (and no monolithic patents prior to or at our focus firms) and one inventor (out of 3388 inventors who ever patent at our focus firms) that didn’t fit into our classification system. The seven inventors (the first group) had only non‐integrated patents at offshoring firms and then go to an onshore firm and patent in monolithic (6 go to Infinera and one goes to Xponent). We discuss the six inventors that go to Infinera in greater detail in section 4.2.2. The one inventor who didn’t fit our classification system currently works at an offshoring firm (Neophotonics) and has no patents at that firm but had
monolithic patents at Lightwave (an on‐shore firm acquired by Neophotonics) and in one out‐of‐focus firm (pre Lightwave) prior to going to Neophotonics. The fact that this inventor goes from an onshore firm to an offshore firm (in this case, due to a acquisition) excludes him from fitting one of the categories in the table.
Page 33 of 44
the focus firm in monolithic integration and eventually leave, almost all of them (94%) go to out-
of-focus firms (outside the optoelectronic component manufacturing industry). (This statistic is
also similar for our control group—of the inventors at our focus firms with no integration patents
who leave, more than 99% of them go to out-of-focus firms.) And yet, again, contrary to our
expectations, of the inventors with strong monolithic integration capabilities at our offshoring
firms who eventually leave, only 21% of them patent in monolithic integration after leaving.
These results suggest that of the inventors who had been patenting in monolithic integration at
the offshoring firms and leave the industry (to out-of-focus firms) the majority of them end up
not pushing forward efforts in monolithic integration in their new locations.24 Notably, these
results do not indicate that monolithic integration activities are not continued by anyone after
they are abandoned by the offshoring firms, just that the majority of the inventors previously
patenting in monolithic at the offshoring firms are not the ones to do it.
Along these lines, two trends are particularly interesting. First, of the 40% of inventors
with strong capabilities in monolithic integration who eventually leave an offshoring firm, 10%
(2) of these inventors go to an onshore firm, and both of them continue patenting in monolithic
integration. That onshore firm is Infinera. Even more interesting, 70% of inventors with strong
capabilities in monolithic integration, who have prior experience in monolithic integration but
without any patents in monolithic integration at our focus offshoring firms eventually leave.25
Of those who eventually leave the offshoring firms 43% (3) go to an onshore firm, and again all
of them continue patenting in monolithic integration at that onshore firm. Again, this onshore
firm is Infinera. Particularly noteworthy in the above findings is that inventors with prior strong
24 As an aside, a slightly higher percentage of the equivalent inventors from never offshore firms patent in monolithic integration after leaving – 43%. This difference is marginally significant, despite the low sample size. 25 This number compares with, on average 43% of inventors with strong capabilities in monolithic integration but who patent in monolithic integration at the focus firms and on average 17% of inventors with only one or two patents in integration or with no patents in integration eventually leaving their firms.
Page 34 of 44
Table 7: Comparison between different groups of inventors
Focus Integrated Inventors (>2 Int. Patents)
Remaining Integrated Inventors (1 or 2 Int. Patents)
No Integrated Patents
Patent in Monolithic Patent in Hybrid Patent in Monolithic Patent in Hybrid
@ Focus firms Pre‐focus firm @ Focus firms @ Focus firms Pre‐focus firm @ Focus firms
81 10 7 228 8 147 2907
52 Ever
offshore
29 Never offshore
10 Ever
Offshore
0 Never
Offshore
6 Ever
Offshore
1 Never
Offshore
193 Ever
offshore
35 Never offshore
8 Ever
Offshore
0 Never
Offshore
134
Ever
Offshore
13
Never
Offshore
2685
Ever
offshore
222
Never
offshore
Eventually Leave
40% (21)
48% (14)
70% (7)
0% 33% 0 18% (34)
17% (6)
25% (2)
0 16% 8%
(1)
16% 23%
To On‐shore
10% (2)
NA 43% (3)
NA 50% (1)
NA 0% NA 50% (1)
NA 0% NA 0.23% (1) NA
Patent in Mon. after Leaving
100% NA 100% NA 100% NA 0% NA 100% (1)
NA 0% NA NA NA
To Out‐of‐Focus
90% (19)
100% 57% (4)
0% 50% 0% 100% (34)
100% (6)
50% (1)
0% 100% 100% 99% 100%
Patent in Mon. after Leaving
21% (4)
43% (6)
25% (1)
0% 0% 0% 6% (2)
0% 0% 0% 0% 0% NA NA
Table 8: T‐test bet
Page
tween different grou
e 35 of 44
ups of inventors' ratios of eventually leaaving
Page 36 of 44
monolithic integration capabilities that were not using those capabilities at the focus firms are
both more likely to leave, and more likely to go to an onshore firm (specifically, Infinera) where
they patent in monolithic integration. (The latter of the two points being marginally significant
on a very small sample size.) Upon initial analysis of the regional locations of these inventors, it
does not look like these inventors would be affected in their states by strongly enforced non-
compete regulations. This finding warrants further exploration as other incentives, such as the
recipient company not wanting to risk patent or knowledge infringement challenges from recent
employers, might be driving these differences.
4.2.2. The Inventors that Go to Infinera
As shown in our firm analysis, Infinera – which holds 21% of integrated patents
(monolithic and hybrid) within our focus firms and 32% of monolithic integration patent within
our focus firms – plays a critical role in monolithic integration innovation. Our findings at the
individual level shows 22% of our 106 focus integration inventors (three or more patents in
integration) and 83% of our inventors with more than 9 integrated patents work at some point at
Infinera. To understand better what led to the creation of such a powerhouse in integration, we
examine the trajectories of inventors who have ever worked at Infinera, and try to unpack what
Infinera’s strategy might have been in hiring these inventors (Table 9).
More than half (52%) of the monolithic integration inventors at Infinera worked
previously at one of our offshoring firms. All of the inventors who worked at our offshoring
firms before going to Infinera left the offshoring firm to go to Infinera one to four years after the
firm moved offshore1. While 42% of these inventors had previously patented in monolithic
integration prior to coming to Infinera (two of these inventors had previously patented in
1 Six of the 16 Infinera inventors come from JDSU, 2 from Avago, 2 from Corvis, 1 from TriQuint, 1 from Agilent, 1 from Intel, 1 from Harmonic Lightwaves, 2 start their patenting careers at Infinera.
Page 37 of 44
monolithic integration at their offshoring firm, and another three of these inventors had patented
in monolithic integration prior to going to their offshoring firm), a full 58% of the inventors have
Table 9. The Movement of Inventors Who ever worked at Some Point at Infinera
Monolithic Inventors at Infinera
Firm pre‐ Infinera
Headquarters(state)
Leave after firm offshore (years)
Arrival at Infinera,2
Firm post Infinera
Depart Infinera
Drew Perkins (Founder)
(NA) (NA) (NA) 2001 (NA) (NA)
David F. Welch (Founder)
JDSU CA 2 2001 (NA) (NA)
Frank H. Peters Avago CA 2 2001 Tyndall National Institute
2004
Richard P. Schneider Avago CA 2 2001 (NA) (NA)
Stephen Gregory Grubb †
Corvis ‡ MD ‡ (NA) 2001 (NA) (NA)
Matthew L. Mitchell † Corvis ‡ MD ‡ (NA) 2001 (NA) (NA)
Charles H. Hoyner TriQuint OR 1 2002 (NA) (NA)
Radhakrishnan L. Nagarajan
JDSU CA 2 2002 (NA) (NA)
Mark J. Missey JDSU CA 2 2002 (NA) (NA)
Vincent G. Dominc JDSU CA 2 2002 (NA) (NA)
Atual Mathur JDSU CA 2 2002 (NA) (NA)
Andrew Dentai Agere PA 2 2002 (NA) (NA)
Fred Kish Jr. Agilent CA 3 2002 (NA) (NA)
Alan C. Nilsson † Harmonic Lightwave
CA (NA) 2002 (NA) (NA)
Jonas Webjorn † Intel CA (NA) 2002 (NA) (NA)
Robert B. Taylor † (NA) (NA) (NA) 2002 (NA) (NA)
Ting‐Kuang Chiang † (NA) (NA) (NA) 2002 (NA) (NA)
Brent Little MIT MA (NA) 2002 (NA) (NA)
Mehrda Ziari JDSU CA 3 2003 (NA) (NA)
John Hryniewicz Little Optics ‡
MD ‡ (NA) 2005 (NA) (NA)
Wei Chen Avanex CA 4 2007 (NA) (NA)
David Gill Little Optics ‡
MD ‡ (NA) 2007 (NA) (NA)
Wenlu Chen (NA) (NA) (NA) 2007 (NA) (NA)
† Never worked at offshoring firms
‡ In 2006, Infinera took over Corvis’s all‐optical switch product line, including licensing the intellectual property rights to it, and gaining 40 Broadwing employees that had been part of the Corvis business (Corvis changed its name to Broadwing in 2004 after acquiring the Broadwing in 2003, however existing patents kept the Corvis name); Little Optics was acquired by Infinera in 2007 (NA) Not applicable.
2 The time shows when the inventor had his/her first patent at Infinera (based on USPTO database) or when he/she entered Infinera (if his/her resume is available)
Page 38 of 44
their first patent in monolithic integration only after arriving at Infinera. As can be seen in Table
5, several inventors who worked together in the same firms – in particular JDSU and
Avago/Agilent – move together to Infinera. In the case of JDSU, the inventors follow David
Welch – one of the Infinera’s two founders. David Welch originally worked at SDL, which was
acquired by JDSU in 2001. Three months after the acquisition, David Welch left JDSU and
founded Infinera.
These results are surprising given past literature suggesting that once an inventor has been in
a particular technical area for more than three years, he or she is likely to continue innovation
activities in the same direction despite institutional changes, or other outside forces (Garud and
Rappa 1995; Furman et al. 2010). These results also stand in contrast to the body of literature on
inventors bringing technological expertise from previous firms into new ones (e.g. (Rosenkopf
and Almeida 2003; Song et al. 2003; Klepper and Sleeper 2005; Klepper and Thompson 2010)).
In addition, given the extensive recent literature on the significance of non-compete agreements
(Marx 2009; Marx et al. 2009; Marx et al. 2010; Marx 2011; Marx and Fleming 2011), it is
particularly interesting that Infinera, despite being headquartered in California – a state that does
not enforce non-competes, would not primarily recruit inventors from the offshoring firms with
past experience in monolithic integration. Notably, Infinera does have subsidies in Maryland and
in Pennsylvania, states that may more strictly enforce non-compete agreements. And yet, all of
the inventors Infinera recruits either are part of a legal agreement (one undisclosed agreement
involving the take over of another company’s business line including licensing of patents and
transfer employees, and one formal acquisition) or already come from a company in California.
Leaving aside for a moment Infinera, a partial explanation for why more inventors don’t
continue activities in the emerging technology (monolithic integration) after the burst of the
Page 39 of 44
bubble may lie in the finding that individual respond to post-employment restraints by taking
“occupational detours” (Marx 2009). Alone, however, this explanation is unsatisfactory, given
that so much of optoelectronic component manufacturing and opportunities in optoelectronics
(both within and outside of telecommunications) lies in California – a state without non-compete
enforcement. Future work should interview inventors with strong capabilities in the emerging
technology that leave the offshoring firm and go to firms outside the telecommunications
industry to understand why more of them don’t continue activities in the emerging technology.
The occupational detours explanation also, alone fails to explain why Infinera wouldn’t focus on
hiring inventors with previous experience in the emerging technology. Future work should also
conduct interviews of Infinera’s founders and inventors to further unpack the story behind why
Infinera largely recruited inventors from their offshoring competitors in optoelectronics
component manufacturing for telecommunications that did not have experience at those firms
(nor in many cases anywhere else) in monolithic integration.
5. Discussion and Conclusion
This study explores the relationship between offshoring and innovation directions. We seek
to understand whether 1) offshoring firms decrease activities in the emerging technologies after
moving offshore, and 2) inventors who had been working on the emerging technologies at the
offshoring firms leave and continue innovation in the emerging technology at other institutions.
We look, in particular, at offshoring in small and medium sized optoelectronic component
manufacturers for the telecommunications industry after the burst of the telecommunications
bubble. We look at three competing technologies: The emerging technology is monolithic
integration. By dramatically reducing form factor size, monolithic integration enables the
benefits of reduced power and increased bandwidth inherent to optoelectronics (in comparison to
Page 40 of 44
pure electronics) to reach markets outside of telecom including computing, biotechnology,
energy, and military applications. The alternatives are hybrid integration (an intermediate
technology, less advanced than monolithic integration) or discrete technologies (involving
human-based assembly instead of more sophisticed scientific-based combination of functions on
a single semiconductor chip). Both of these latter technologies involve greater labor and
assembly requirements, and lack the critical performance (small form factor) benefits of
monolithic integration for accessing larger markets. Building on Fuchs and Kirchain (2010), we
hypothesize that offshoring will lead to a decrease in innovation in the most advanced
technology, monolithic integration, due to discrete technologies produced in developing East
Asia being cheaper than any other option (including the advanced monolithically integrated
technologies, despite those technologies being the cheapest to produce if only manufacturing in
the U.S.)
Our regressions suggest that moving all manufacturing offshore (both assembly and
fabrication) is associated with a decrease in emerging, monolithic integration innovation
activities. These results match the economics found in Fuchs and Kirchain (2010), which show
that manufacturing overseas reduces the economic viability of producing monolithically
integrated technologies but then take those results a step farther, showing that the firms not only
lose incentives for producing the emerging technology – they also reduce their innovation
activities back home in that same technology. It is particularly interesting that the statistically
significant relationship between offshoring and reducing innovation activities in the emerging
technology is only found once the firms move fabrication capabilities offshore – the specific
manufacturing capabilities key to producing the emerging technology.
Page 41 of 44
The regression results on the relationship between offshoring and innovation in
technologies other than monolithic integration are equally interesting. While the offshoring of
only assembly activities is not associated with a statistically significant change in innovation in
the emerging technology (monolithic integration), it can be associated with an increase in other
innovation activities (here, hybrid integrated and non-integrated patenting). Additional work is
necessary to understanding the relationship between moving all manufacturing offshore (both
fabrication and assembly) and rates of innovation in areas outside of emerging technologies with
tight links to manufacturing. In the case of the optoelectronics industry, the increase in hybrid
patent counts when only moving assembly facilities offshore is not surprising – hybrid
integration is in many ways a labor- and assembly-oriented substitute for monolithic integration
that while it lacks the performance advantages of monolithic integration, could likely easily be
performed in an overseas facility. The increase in non-integrated patent counts for moving only
assembly offshore (and of non-integrated patenting rates for moving both assembly and
fabrication offshore in the case of Agilent) is difficult to interpret without greater understanding
of the technologies being patented. If these technologies are advanced technologies in other areas
or directions, this result could be seen as supporting past work by economists that suggest
offshoring enables a firm to save costs and thereby direct more resources toward higher-value-
added activities (e.g. Farell), (even if not to the emerging technology of monolithic integration.)
If making this argument, it would be important to understand whether the advanced technologies
did or did not have local manufacturing. On the other hand, if the areas in which firms are
patenting are more incremental activities, such as supporting improvements in assembly, the
most important result may be the decrease in patenting in the emerging technologies.
Page 42 of 44
At the inventor level, we find that the majority of inventors with strong patenting records
in the emerging technology at the offshoring firms are not the ones who push forward innovation
in the emerging technology after leaving. Only 21% of inventors with strong patenting records
in the emerging technology at the offshoring firms who leave the offshoring firm for a firm
outside the optoelectronic component manufacturing industry continue to patent in the emerging
technology. That said, inventors who go to the onshore firm, Infinera, do push forward patenting
in the emerging technology. More than half of inventors at Infinera were previously at an
offshoring firm, and all of them leave that firm for Infinera one to four years after their previous
firm moves offshore. Interestingly, however, only 42% of these inventors from offshoring firms
have any past experience in the emerging technology (and only 9% have past experience at the
offshoring firm in the emerging technology – the rest have earlier experience.) The rest of the
inventors have their first patent in the emerging technology at Infinera. Subsequent research is
needed to better understand why more inventors with strong capabilities in the emerging
technology do no continue innovation in these areas after leaving the offshoring firm. Likewise,
it will be important to conduct future work to better understand Infinera’s hiring strategy – which
clearly gains from the offshoring firms’ employee losses, although not by focusing on hiring
existing experts in the emerging technology – and how that strategy may have led to Infinera
becoming the telecommunications industry’s leader in the emerging technology that it is today.
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Appendix
1. PatentApplicationAnalysis2. RobustAnalysisofRegressionModels3. FirmRankedList4. FirmCaseStudies5. InventorT‐testTables
Appendix1
Appendix 1. Patent Application Analysis
Ouranalysisofthefocusfirms’patentdatashows,onaverage,aonetofouryeargapbetweenpatentapplicationdatesandpatentgrantingdates.Asaconsequence,whilethemajorityofthefirmswentoffshorebetween1997to2007(onein1997,onein1998,onein2000,threein2001,twoin2002,twoin2003,fourin2005,onein2006andtwoin2007),currentlyweonlyareabletoobservethreetonineyearsofpost‐offshoringpatentingbehaviorforseventeenfirmsandhavenoreliablepost‐offshoringpatentingdataforthesevenlatemoverfirms(movedoffshore2005‐2007).Inournegativebinomialpatentcountmodels,theselatemoversaremodeledthenasbeingessentiallyonshoreforourfullobservationperiod(1992to2006).Inanattempttoovercomethislimitationandextendourobservationperiod,weexploredusingpatentapplicationsfromtheUSPTOdatabase,inadditiontograntedpatents,torepresentfirms’innovativeoutcomes.Ourinitialhopewastoincludetheapplicationcountsasapredictorvariable(foryearspriorto2006)orasapredictionforthepatentcountsfrom2007to2010(byusingtheratioofobservedapplicationstograntedpatentspriorto2006).Regretfully,wefoundmanychallengeswhenusingtheUSPTOpublishedapplicationsdata.First,applicationdataisonlyavailableontheonlineUSPTOdatabasefromMarch2001tothepresent.Second,firmshavetherighttoasktheUSPTOtonottopublishtheirapplication.Third,ifafirmdoesnotrequestthattheapplicationnotbepublished,unlesstheyspecificallyrequestthepatentapplicationbepublishedearlier,theapplicationisonlypublishedaftereighteenmonths.Fourth,ifafirm’spatentisgrantedpriortothis18‐monthperiod,evenifthefirmallowedtheapplicationtobepublished,thepatentwillgodirectlytobeingpublishedasagrantedpatentandnotshowupintheapplicationdata.Giventheabove,wewouldexpecttheavailableapplicationdatatoundercountthetruenumberofpatentsgranted(orgoingtobegranted).Indeed,usingtheapplicationdatafrom2001to2006,wefoundthat15ofour28firmshave,inoneormoreyears,aratioofgrantedpatentstopublishedapplicationslargerthanone,suggestingthatmanyoftheirpatentapplicationsforonereasonortheotherwereneverpublished.Wealsofoundthattheseratiosareverydifferentbyfirmandbyyear;thefirm’saveragesix‐yearratiosrangesfrom0to21.33(standarddeviation:0.03to12.07).Tofurtherquantifytheappropriatenessofusingthegrantedpatentstoapplicationsratiotopredictpatentcounts,wecalculatedtheprobabilityofobservingthe2001‐2006patentcountsbyfirmassumingaPoissondistributionwithameanvectorofthefirm’spredictedpatentcounts(usingtheapplicationdata).Weexploredusingratiosbasedonintegratedandnon‐integrated1patent/applicationcountsatthreedifferentlevels(firm,optoelectronicindustryandtheUSPTO).Whenlookingatnon‐integratedpatents,theprobabilityofobservingthe2001‐2006countsgiventhefirm‐levelratiorangesfrom0to0.04(0for21of28firms).Theprobabilityofobservingthe2001‐2006countsgiventheindustry‐levelratiorangesfrom0to2E‐9;usingtheUSPTO‐levelratio,theprobabilitiesrangefrom0to0.02.Again,fortheselatertwolevelsofnon‐integratedpatentratios,wefoundaratioof0for21of28firms.Formonolithicpatents,theprobabilitiesforallthreeratios(firm‐level,industry‐level,andUSPTO‐level)rangefrom0to1(0for19of28firms).Thefirmswithprobabilityoneofobservingtheir2001‐2006countsarethosewhohavenotpatentedinmonolithicintegration.Soalthoughwemaybeabletopredictthepatentcountsofafewspecialcases(i.e.thosewhohaveneverpatentedinanarea),ingeneral,weareunabletosuccessfullypredictthepatentcountsusingavailableapplicationdata.Moreover,theaboveanalysispresumesthatthe2001‐2006ratiosmightbereasonablepredictiontoolsforpatentcountspre‐2006or2007‐2010.
Appendix1
Evenwithin2001‐2006,wesawawidevariationingrantedpatenttoapplicationratios.Thiswidevariationmightbeattributabletodifferentfirmapplicationpublicationstrategiesovertime,particularlyifthefirmshavemovedoffshore.Usingthesameratioofgrantedpatentstoapplicationfrom2001‐2006topredictgrantedpatentseitherpre‐2006or2007‐2010inthepresenceofpublicationstrategychangescouldpotentiallybeverymisleading.Thus,weconcludethecurrentavailableapplicationdatafromtheUSPTOdatabase,unfortunately,isnotsuitabletoextendthelengthofourobservationperiod.
Appendix2
Appendix 2: RobustAnalysisofRegressionModels
TableA2.1NegativeBinomialRegressionswithInfineraFixedEffect
Monolithic Hybrid Non‐integrated
Assembly Only Offshoring y‐1 ‐0.18
(0.23)
0.77 **
(0.26)
0.71 ***
(0.18)
Both Offshoring y‐1 ‐0.41 **
(0.13)
‐0.01
(0.09)
‐0.02
(0.06)
Revenue y ‐6.1e‐11
(1.8e‐10)
1.9e‐10
(1.5e‐10)
2.4e‐10 *
(1.0e‐10)
R&D Spending y‐1 1.5e‐09
(1.2e‐09)
‐4.1e‐11
(1.3e‐09)
4.1e‐10
(7.1e‐10)
U.S. Int. Patent y 0.009
(0.006)
0.03 ***
(0.006)
U.S. Non‐int. Patent y 7.6e‐04 ***
(1.3e‐04)
Telecom bubbley‐1 ‐0.18
(0.45)
‐0.84
(0.60)
‐0.55 *
(0.60)
Infinera 3.08 ***
(0.35)
‐35.39 ***
(1.47)
‐0.12
(0.21)
Constant ‐1.63. (0.83)
‐4.22 ***
(0.69)
‐1.11 .
(0.61)
N= 152 152 152
AIC 313.51 247.03 1095.8
Robust std. errors are in parentheses
Signif. codes: ‘***’ p< 0.001; ‘**’ p< 0.01; ‘*’ p< 0.05; ‘.’ p< 0.1
Appendix2
TableA2.2NegativeBinomialRegressionswithFirmFixedEffect
Monolithic Hybrid Non‐integrated
Assembly Only
Offshoring y‐1
‐0.37
(0.32)
0.30
(0.24)
0.07
(0.14)
Both Offshoring y‐1 ‐0.03
(0.26)
0.15
(0.21)
‐0.08
(0.08)
Revenue y 2.5e‐10
(2.5e‐10)
2.6e‐10
(2.3e‐10)
1.1e‐10
(1.2e‐10)
R&D Spending y‐1 1.3e‐09
(1.88e‐09)
2.2e‐09
(1.9e‐09)
‐1.9e‐09 *
(9.5e‐10)
U.S. Int. Patent y 0.009 *
(0.006)
0.019 **
(0.007)
U.S. Non‐int. Patent y 9.5e‐04 ***
(1.1e‐04)
Telecom bubbley‐1 ‐0.01
(0.55)
‐0.53
(0.60)
‐0.14
(0.21)
Agere
N= 8
‐2.78 *
(1.42)
‐5.34 ***
(1.55)
‐0.54
(0.63)
Agilent
N= 10
‐4.55
(2..93)
‐6.78 *
(2.87)
1.21
(1.16)
AFOP
N= 9
‐38.12
(2.2e07) ‐4.60 **
(1.46)
‐2.62 ***
(0.66)
Avanex
N= 8
‐1.06
(0.82)
‐4.04 ***
(1.09)
‐1.59 **
(0.58)
Bookham
N= 11
‐0.43
(0.66)
‐3.34 ***
(0.92)
‐2.16 ***
(0.53)
Cyoptics
N= 7
‐38.40
(2.5e07)
‐3.84 ***
(1.13)
‐5.58 ***
(0.81)
Emcore
N= 11
‐2.52 **
(0.88)
‐2.86 **
(0.87)
‐3.02***
(0.56)
Finisar
N= 10
‐1.39 .
(0.82)
‐2.27 *
(0.87)
‐0.70
(0.55)
Infinera
N= 2
1.20
(0.82)
‐39.18
(4.7e07)
‐2.18 **
(0.72)
JDSU
N= 12
‐1.61 *
(0.72)
‐3.27 ***
(0.86)
0.90 .
(0.49)
LSI
N= 15
‐3.89 ***
(1.03)
‐6.01 ***
(1.34)
‐2.16 ***
(0.45)
NeoPhotonics
N=1
‐38.26
(6.7e07)
‐39.05
(6.7e07)
‐3.78 **
(1.29)
New Focus
N= 5
‐38.06
(3.0e07)
‐4.13 **
(1.35)
‐2.32 ***
(0.64)
Appendix2
Oplink
N= 9
‐3.45 **
(1.25)
‐4.79 ***
(1.32)
‐2.60 ***
(0.58)
Opnext
N=3
‐38.41
(3.9e07)
‐39.34
(3.8e07)
‐4.06 ***
(0.80)
OCP
N=10
‐2.88 **
(1.01)
‐3.92***
(1.07)
‐3.45 ***
(0.59)
SDL
N=7
‐1.12 .
(0.69)
‐38.21
(2.5e07)
‐0.35
(0.45)
TriQuint
N=14
‐2.21 **
(0.83)
‐3.85 ***
(0.99)
‐3.14 ***
(0.56 )
Obs. N= 152 152 152
AIC 297.66 255.49 993.61
Std. errors are in parentheses
Signif. codes: ‘***’ p< 0.001; ‘**’ p< 0.01; ‘*’ p< 0.05; ‘.’ p< 0.1
Appendix2
TableA2.3NegativeBinomialRegressionsonFocusFirmswithStrategyFixedEffects(withcontrolsforthetelecommunicationsbubble)
Monolithic integrated Hybrid integrated Non‐integrated
Assembly Only
Offshoring y‐1
‐0.41
(0.33)
0.69 *
(0.29)
0.40 .
(0.21) Both Offshoring
y‐1 ‐0.51 **
(0.18)
‐0.09
(0.10)
‐0.12
(0.08) Revenue
y ‐4.2e‐11
(2.1e‐10)
1.4e‐10
(1.5e‐10)
3.1e‐10 **
(1.1e‐10) R&D Spending
y‐1 1.35e‐09
(1.59e‐09)
‐1.5e‐10
(1.2e‐09)
‐2.4e‐10
(7.5e‐10) U.S. Int. Patent
y 0.004 .
(0.007)
0.02 ***
(0.006)
U.S. Non‐int. Patent y 7.5e‐04 ***
(9.7e‐05) Telecom bubble
y‐1 0.59
(0.68)
‐0.78
(0.54)
‐0.007
(0.24)
Onshore Strategies ‐0.64
(0.91)
‐5.48 ***
(1.33)
‐1.95 ***
(0.47)
All‐offshore Strategies ‐1.31
(0.81)
‐3.55 ***
(0.74)
‐0.95 .
(0.50)
Hedger Strategies ‐1.19
(0.75)
‐4.07 ***
(0.88)
‐0.98 .
(0.52)
Late‐offshore
Strategies
‐1.25
(1.15)
‐3.79 ***
(0.78)
‐2.16 ***
(0.58)
Early Exiters ‐1.38
(0.86)
‐4.89 ***
(1.44)
‐0.15
(0.46)
N= 152 152 152
AIC 331.67 248.13 1059.1
Robuststandarderrorsareinparentheses.Signif.codes:0‘***’0.001‘**’0.01‘*’p<0.05‘.’P<0.1‘’1
Appendix2
TableA2.4NegativeBinomialRegressionsonFocusFirmswithStrategyFixedEffects(withoutcontrolsforthetelecommunicationsbubble)
Monolithic integrated Hybrid integrated Non‐integrated
Assembly Only
Offshoring y‐1
‐0.30
(0.28)
0.49 .
(0.29)
0.40 *
(0.20) Both Offshoring
y‐1 ‐0.45 **
(0.16)
‐0.16 .
(0.10)
‐0.12
(0.07) Revenue
y ‐8.2e‐11
(1.9e‐10)
1.8e‐10
(1.56e‐10)
3.1e‐10 **
(9.9e‐11) R&D Spending
y‐1 1.5e‐09
(1.5e‐09)
‐1.4e‐10
(1.3e‐09)
‐2.4e‐10
(6.7e‐10) U.S. Int. Patent
y 0.008 .
(0.007)
0.02 ***
(0.004)
U.S. Non‐int. Patent y 7.5e‐04 ***
(1.0e‐04) Onshore Strategies ‐0.74
(0.85)
‐5.17 ***
(1.30)
‐1.94 ***
(0.49)
All‐offshore Strategies ‐1.66 *
(0.82)
‐3.03 ***
(0.65)
‐0.95 .
(0.52)
Hedger Strategies ‐1.50 .
(0.78)
‐3.62 ***
(0.85)
‐0.98 .
(0.55)
Late‐offshore
Strategies
‐1.54
(1.24)
‐3.53 ***
(0.68)
‐2.16 ***
(0.59)
Early Exiters ‐1.68 .
(0.86)
‐4.37 **
(1.21)
‐0.15
(0.48)
N= 152 152 152
AIC 330.4 248.16 1061.5
Robuststandarderrorsareinparentheses.Signif.codes:0‘***’0.001‘**’0.01‘*’p<0.05‘.’P<0.1‘’1
Appendix3
TableA3.1ListofFocusFirmsRankedbyDifferentVariables
Rank Revenue2005 RDSpen2005 Integrated Monolithic Hybrid Non-integrated Integrated/ All patents (%)
Monolithic/ All patents (%)
1 Agilent Agilent Infinera Infinera Finisar Agilent Infinera Infinera 2 LSI Agere JDSU Bookham Avago Finisar NeoPhotonics(2nd) NeoPhotonics 3 Agere LSI Finisar JDSU Agilent JDSU Optronx (2nd) Lightwave 4 JDSU JDSU Bookham Lightwave JDSU Avago Lightwave LNL 5 TriQuint Finisar Agilent Avanex Emcore Agere CyOptics (5th) Kotura 6 Finisar TriQuint Lightwave Agere (6th) Lightwave Avanex LNL (5th) Bookham 7 Bookham Bookham Avago NeoPhotonics(6th) Bookham SDL Kotura Picolight 8 Avanex Opnext Agere Agilent Agere Bookham Prima Luci Prima Luci 9 Opnext Avanex Avanex Finisar Teraconnect Axsun Teraconnect Xponent
10 Emcore Infinera Emcore Kotura Infinera (10th) Oplink Bookham TriQuint 11 OCP Emcore NeoPhotonics Picolight (11th) Optronx (10th) LSI Emcore (11th) Avanex 12 NeoPhotonics OCP TriQuint SDL (11th ) Prima Luci(10th) Emcore Opnext (11th) OCP 13 Oplink NeoPhotonics Kotura TriQuint (11th) TriQuint (10th) AFOP (13th) Picolight (13th) Agere 14 CyOptics CyOptics Prima Luci Emcore (14th) AFOP (14th) TriQuint (13th) TriQuint (13th) Emcore 15 AFOP Oplink SDL LNL (14th) Avanex (14th) New Focus Xponent LSI 16 Infinera AFOP LNL (16th) Prima Luci (14th) Axsun (14th) OCP OCP JDSU 17 OCP (16th) Xponent (14th) CyOptics (14th) Infinera Agere (17th) SDL 18 Optronx (16th) Avago (18th) Kotura (14th) Xponent Avanex (17th) Finisar 19 Picolight(16th) LSI (18th) Opnext (14th) Picolight JDSU Oplink 20 Teraconnect(16th) OCP (18th) OCP (14th) Lightwave Finisar Agilent 21 Xponent (16th) Oplink (21st) LNL (21st) Prima Luci LSI Avago 22 LSI Optronx (22Nd) LSI (21st) Kotura (22nd) Avago Optronx (22Nd) 23 AFOP (23rd) AFOP (22Nd) New Focus(21st) Teraconnect(22nd) AFOP AFOP (22Nd) 24 Axsun (23rd) Axsun (22Nd) Oplink (21st) Opnext SDL Axsun (22Nd) 25 CyOptics (23rd) CyOptics (22Nd) Xponent (21st) NeoPhotonics Agilent CyOptics
(22Nd) 26 Oplink (23rd) New Focus (22Nd) NeoPhotonics(26th) LNL Oplink New Focus
(22Nd) 27 Opnext (23rd) Opnext (22Nd) Picolight(26th) CyOptics (27th) Axsun Opnext (22Nd) 28 New Focus Teraconnect
(22Nd) SDL(26th) Optronx (27th) New Focus Teraconnect
(22Nd)
Appendix4
Appendix 4: Firm Case Study
Thestrongeffectofindividualfirmstrategyonpatentingfoundinthefixedeffectsregressionanalysisarguesforacase‐studyapproachtofurtherunderstandtheindividualstrategiesofeachfirm.Incasestudyresearch,wearenotlimitedtohavingthesamedataforeachfirm,andcanthusleverageabroaderamountandmoreheterogeneoussourcesofdataininformingourconclusions.Inassessingtheindividualfirmstrategieswecategorizetheminto5groups:theall‐onshorestrategists,thealloffshorestrategists,thesplitoffshorestrategists,thelateoffshorers,andtheearlyexiters.
1. The All‐Onshore Strategiests
1.1. The On‐shore Integrator: Infinera
Infineraisthetopintegratedpatentproducer(15%ofallintegratedpatentsinoursample,and23%ofallmonolithicallyintegratedpatentsinoursample)andoneoftheonlytwofirms1forwhomover50%ofitspatentsaremonolithicallyintegrated.Infinerawasfoundedin2000andstayson‐shore.Fromfigure9inAppendix6,wecanseeInfinerastartedtheirinnovationactivitieswithalmostequaleffortsonintegratedandnon‐integrateddesign(5integratedvs.6non‐integrated)in2002.Ofthese5integratedpatents,oneofthemishybriddesignandfourmonolithic.After2003,Infinerashiftsitsfocustomonolithicallyintegrateddesignsandallitsintegratedpatents,whicharetwicethenumberofitsnon‐integratedpatents,aremonolithic.
1.2. The On‐Shore Non‐Integrators: LSI, Axsun, Xponent, Prima Luci
Fourfirms,LSI,Axsun,Xpnent,andPrimaLuci,stayentirelyon‐shore;however,differentfromInfinera,theirpatentingisfocusedonnon‐integratedorhybriddesigns.Noneofthesefirmsareinthetop‐ten,bymagnitude,ofintegrated(monolithicorhybridorboth)patentors.Futureworkshouldmorecarefullyexploreexactlywhatoptoelectroniccomponentsthesefirmsmakeforthetelecommunicationmarket,andhowtheycompete.
2. The All‐Offshore Strategists
OppositetothefirmsthatkeepallproductionintheU.S.,anothersetoffirmsmoveallproductionoverseas.ThesefirmsincludeFinisar,Agilent(Avago),Agere,Oplink,AFOP.Finisarmovedassemblymanufacturingfirstandthenfabricationmanufacturingoffshore.Theotherfirmsmovedassemblyandfabricationoffshoreinthesameyear.
2.1. The Incremental Offshorer: Finisar
LikeInfinera,Finisarisoneofthetopintegratedpatentproducers;however,incontrasttoInfinera,Finisarfocusesitsintegratedinnovationsonhybriddesigns2.Finisarisalsothesecond‐highestnon‐
1AnotherisNeoPhotonics.NeoPhotonicshashalfofitspatentsintegratedandhalfnon‐integrated.Alloftheintegratedpatentsaremonolithic.Itmovedoffshorein2005andseemstoshifttheirfocustonon‐integrateddesign,whichweneedmoredataafter2005toprove.(SeeAppendix6)2Fourpercent(20)ofFinisar’stotalpatents(507)areintegratedand70%ofitsintegratedpatentsarehybrid.
Appendix4
integratedpatentproduceramongourfocusfirms.ThereisaninterestingrelationshipbetweenFinisar’sinnovationactivitiesanditsmanufacturinglocations.Afterthetelecombubble(2000),Finisarstartedtogooffshorein2001.Itfirstmovedonlyitsassemblymanufacturingfollowedbyfabricationmanufacturingin2003.Priortomovingitsfabricationoffshore,Finisarkeptincreasingitsnon‐integratedpatentsandworkingonbothmonolithicandhybriddesigns3.After2003,Finisardecreasesitsnon‐integratedpatentingandreduceitsmonolithicproductivity;duringthesametime,however,itsratioofhybridpatentstototaloptoelectronicpatent(monolithic,hybridandnon‐integrated)increases.4(SeeAppendix6)
2.2. The All‐At‐Once Offshorers: Agilent(Avago), Agere, Oplink, AFOP
Severalfirms(Agilent(Avago)5,Agere,Oplink,AFOP)alsomoveoffshore,but,unlikeFinisar,movetheirfabricationandassemblyoffshoreinthesameyear.Thefirsttwo,AgilentandAgere,havehighrevenues(withinTop3)6andhighnon‐integratedpatentproductivity(withinTop5).Thelasttwo,OplinkandAFOP,havelowerrevenues.Allofthemfocusonnon‐integrateddesignsandiftheyhaveintegrateddesignpatentsthesepatents,exceptforinthecaseofAgere7,focusmoreonhybridtechnologies.InthecaseofAgere,94%ofitspatentsareinnon‐integration;however,withintheintegratedpatentsithas,themajorityismonolithic.AfterAgerewentoffshore,itonlyhadtwointegratedpatents(onehybridonemonolithic)in2003andnoneinthefollowingyears.SimilartoAgere,manyoftheotherfirmsreturntoexclusivelypatentinginnon‐integratedtechnologiesaftertryingbrieflytodointegration(intheircaseslargelyinhybridtechnologies).Overall,theearlierthesefirmsmovedoffshore,thelowerpercentageofmonolithicpatentstheyhad8.
3. Hedging Bets – The Split Offshore Strategists
Inadditiontothegroupswhoareentirelyoffshoreorentirelyon‐shore,thereisanothergroupoffirms–thosethatkeeptheirfabricationon‐shoreandmovetheirassemblyoverseas.ThissetincludesJDSU,TriQuint,AvanexandPicolight.JDSUandTriQuinthavemoreresources(beingthefourthandfifth‐highestrevenueearners).AvanexandPicolightcomparedtoJDSUandTriQuint,
3Before2003,Finisarhavehalfofitsintegratedpatentinhybridtechnologyandhalfinmonolithic.4Finsiar’snon‐integratedpatentsdecreasedfrom127to111to106to39(96%,97%,95%,91%ofitstotaloptoelectronicpatentsrespectively)from2003to2006;itshybridintegratedpatentsincreasedfrom2to3to6to3(40%,75%,100%,75%ofitsintegratepatents;2%,3%,6%7%ofitstotaloptoelectronicpatents)from2003to2006;itsmonolithicintegratedpatentsdecreasedfrom3to1to0to1(60%,25%,0%,25%ofitsintegratepatents;2%,1%,0%,2%ofitstotaloptoelectronicpatents)5WeconsiderAgilentandAvagotogetherbecauseAvagowasdivestedfromAgilentin2005.Originally,AgilentwasdivestedfromHPin1999.6Thefinancialdata,i.e.revenueandR&D,inthefirmcasestudiesareallon2005base.7Here,wedonotconsiderOplink,thoughtheratioofitshybridtomonolithicdesignis1:1,becauseitonlyhasonepatentforeachtypeofintegration.Thenumberofitsintegrateddesignistoofewtoobservethepreferenceforhybridormonolithic.8AFOPmovedoffshorein1997andhad0%ofitspatentsaremonolithic;Agilent(Avago)movedoffshorein1999andthepercentageis0.9%;Oplinkmovedin2001andthepercentageis1.1%;Ageremovedoffshorein2002andthepercentageis4.1%
Appendix4
haverelativelysmallrevenues910.Notably,AvanexmergedwithBookhamin2008;PicolightisaprivatefirmandwasacquiredbyJDSUin2007.
3.1. The Rich Hedgers: JDSU, TriQuint
JDSUandTriQuintbothfocusonnon‐integratedpatentsbutalsoworkonintegrateddesignwithapreferenceformonolithictechnology.JDSUatfirstpatentedonlyinnon‐integrateddesigns.After1994,itstartedalsotopatentinhybriddesigns,andoneyearlateritextendeditsinnovationtomonolithicdesigns.Overall,JDSUfocusesmostonnon‐integratedpatents11butbymagnitudehasthesecondhighestnumberofintegratedpatentsinourfocusgroupandthethirdhighestmonolithic(60%ofJDSU’sintegratedpatentsaremonolithic)12.AfterJDSUmoveassemblyoffshoredin2002,thepercentageofnon‐integratedpatentsdecreasedslightly;thepercentageofhybriddesignincreasedandthatofmonolithicdesignalsoincreased.Thenin2005,JDSU’spatentinginallareasbeginstodrop.TriQuint,whichissmallerthanJDSU13,alsomainlyworkedonnon‐integrateddesigns14.Bypuremagnitude,TriQuintisnotasdominantinintegratedpatentingasJDSU–ithasthe12thhighestnumberofintegratedpatentsand11thhighestnumberofmonolithicpatents;however,likeJDSU,morethanhalf(57%)ofTriQuint’sintegratedpatentsaremonolithic.TriQuintmoveassemblyoffshorein2001.Before2001,TriQuintfocusedexclusivelyonnon‐integratedpatents.Between2001and2003,itstartedtoworkonbothmonolithicandhybriddesigns;thenitstoppedworkinginintegration.InthetwoyearsTriQuinthadmonolithicpatents,itsnon‐integratedpatentnumbersdrop.
3.2. The Poor Hedgers: Avanex and Picolight
AvanexandPicolightalsofocusmainlyonnon‐integrateddesignandwhentheypatentinintegrationtheyhavehighlypreferenceformonolithicdesign15.SimilartothefindingsfromTrQuint,intheearlyyearsasAvanexandPicolightincreasedtheirmonolithicpatentstheirnon‐integratedpatentingdecreased.AfterAvanexwentoffshorein200316,itspatentnumbersdroppedexceptthenumberofhybridpatents.However,Avanex’srevenueroseby4timesin2004andheldthisincreasingtendency.Picolightstartedtopatentinnon‐integratedin1995andinintegrated(onlymonolithic)in1998.Afteritwentoffshorein2003,itspatentproductivityinallareasdecreased.
9TheratioofAvanex’srevenuetoJDSU’srevenueis2%to3%from2000to2003,17%and23%in2004and2005.TheratioofAvanex’srevenuetoTriQuint’srevenueis6%to55%duringthe2000s.Picolightisaprivatefirm.Itsannualrevenuesmightbe$30millionto$50million,whichwerebelow5%ofJDSU’srevenueandaround11%ofTriQuint’s.10Matsumoto,C.,JdsuPicksupPicolightfor$115m,http://www.lightreading.com/document.asp?doc_id=118325,accesedon1195%ofJDSU’Stotalpatentsarenon‐integrated.12JDSUfoundedin1999;however,itcamefromamergeroftwofirms,JDSFitelandUniphase.Thatiswhyithadpatents,revenueandR&Dspendingbeforethedocumentedfoundedtime.13Eventhoughtthetwofirmsarebothtop5inrevenue,JDSUearned1.7to8.5timestherevenueofTriQuinteachyear.1488%ofTriQuint’spatentarenon‐integrated.15Avanexhas85%ofintegratedpatentsasmonolithicandPicolighthas100%ofintegratedpatentsasmonolithic.16Avanexmovedassemblyoffshorein2003butitdidnotmoveactiveopticalcomponentuntil2006.
Appendix4
4. The Late Offshorers: Bookham, Kotura, CyOptics, NeoPhotonics, OCP, Emcore, Opnext
Somefirmswentoffshoreafter2005.Inthesecases,welackcompletepatentdatatoshowthechangeintheirpatentingaftertheiroffshoring.Bookham,Kotura,CyopticsandNeoPhotonicswentoffshorein2005;OCPmovedoffshorein2006;EmcoreandOpnextmovedoffshorein2007.Alloftheselateoffshoringfirmskeeptheirfabricationon‐shore,exceptNeoPhotonics.Allfirmsinthisgrouphavethemajorityoftheirpatentsinnon‐integratedtechnologies,exceptNeoPhotonics.Amongthesefirms,onlyBookhamandNeophotonicshave,bymagnitude,alargenumberofintegratedpatents.Here,Bookham,withthe4thlargestnumberofintegratedpatents,the2ndlargestnumberofmonolithicpatents,andthe7thlargestnumberofhybridpatentsismostinteresting.Initsintegratedpatentinghistory,Bookhamatfirstmainlyfocusesonthemonolithicdesign,butstartingin2000itsmonolithicpatentnumbergraduallydecreaseanditstartstopatentinhybriddesigns.17
5. The Early Exiters
Withinourresearchscope,severalfirmsexitthemarketpriorto2005(butallafterthetelecombubble2000).Someofthemwereacquired(SDLandOptronxbyJDSUin2001and2002;LightwavebyNeoPhotonicsin2003;NewFocusbyBookham),andsomeexitedwithoutbeingacquired(LNLin2004,Teraconnectin2003).Inthisgroup,allofthefirmsareprivate,exceptNewFocus.Amongtheacquiredfirms,SDLstaysonshoreand–whileithasmostlynon‐integrationpatents‐‐itsintegratedpatentsarefocusedonmonolithic.Lightwavealsofocusesonintegration,withmorethanhalfofthoseintegratedpatentsbeingmonolithic.Newfocusisfocusedonnon‐integratedpatentsandmovesoffshorebeforebeingacquired.Futureworkshouldseektobetterunderstandwhatresources(patents,offshoremanufacturingcapabilities,orotherwise)JDSUandBookhamwereseekinginacquiringeachofthesefirms.Bothofthenon‐acquiredexitershadlowernumbersofpatentsthanmostoftheotherfocusfirms.
6. Case Study Summary
Ourin‐depthcasestudiesofthesefirmsdepictsalandscapeoffirmswithvastlydifferentresourcesandstrategies:Infinerastaysonshoreanddominatesinthemostadvancedmonolithicallyintegratedtechnologies,whilethefirmsthatmoveoffshoreeitherfromthestartlackormoveoutofthemostadvancedmonolithicallyintegratedtechnologies.ThesefindingsbroadlysupporttheproductioneconomicspublishedbyFuchsandKirchain2010.Perhapsmostinteresting,however,arethesplitstrategists.AsissuggestedinFuchsandKirchain2010,herethelarge‐resourcefirmsthattakeasplitstrategysurvivewhilethelower‐resourcefirmswithsplitstrategiesareeventuallyacquired.FuchsandKirchain,however,suggestthatthisstrategymaybeuntenableevenforthelarge‐resourcefirms,duetothechallengesofmaintainingastrategywheresuccessinintegrationR&DintheU.S.meansthedeclineofassemblyneedsindevelopingEastAsiaandviceversa.Inourdatato‐date,JDSUappearstosustainbothactivities,althoughitsmonolithicintegrationactivitiesdeclineinourfinalyearofgooddata.InthecaseofTriQuint,whichstartedwithlesscomparative17Kotura,Cyoptics,NeoPhotonics,andOpnextareprivateandtheyhaveasmallertotalnumberofpatentsthanmostofotherfirmsinourfocusgroup.OCPonlyhad3integratedpatents;thelowestacceptabletomakeitintoourfocusfirmscope.
Appendix4
advantageinmonolithicintegrationamongourfocusfirms,iteventuallygetsoutofintegrationpatenting(monolithicandhybrid).ItremainstobeseenhowJDSU’monolithicintegrationactivitieswillfareinthelongterm.
Appendix5
Appendi
Tabl
Table
5
ix5T‐testbe
leA5.1T‐testb
A5.2T‐testbe
etweengrou
betweendiffer
etweendifferen
upsofIndiv
rentgroupsofi
ntgroupsofin
vidualInven
inventors’rati
nventors'ratio
tors
iosofeventual
oofeventually
llyleavingfor
leavingforou
onshorefirms
ut‐of‐focusfirm
s
ms
Appendix5
TableA5.
5
3T‐testbetweeendifferentgroupsofinvenfntors'ratioofpfocusfirms
patentinginmmonolithicafterrleavingforouut‐of‐